Stocks were mostly lower Thursday as oil prices topped $107 a barrel and disappointing earnings from Oracle weighed down tech stocks.
The Dow Jones Industrial Average and S&P 500 had initially ticked higher as traders breathed a sigh of relief that GDP and jobless-claim reports weren't as bad as expected, but the pop quickly fizzled as the weight of the Oracle and financial news set in to the broader market. Of the three major indexes, the tech-heavy Nasdaq posted the biggest decline.
Oracle said its quarterly profit increased 25 percent but reported disappointing software sales. The company said its customers have become increasingly cautious, raising concerns about business spending and poking a hole in the theory that the software sector would be more resistant to economic turmoil.
Fellow software maker Microsoft was one of the biggest decliners on the Dow, along with chip maker Intel .
Oracle's report "suggests that there's still a lot of difficulty out there," said Bruce McCain, head of investment strategy at Key Private Bank in Cleveland. A lot of tech companies like Oracle have strong overseas exposure and there are increasing indications that there is more weakness overseas than is currently factored into the U.S. market, McCain said.
You have to wonder, "Is this something specific to Oracle or is this a broader indication of a deterioration overseas?" McCain asked.
In fact, McCain's team at Key Private Bank is so concerned about worsening conditions outside the U.S. that they advise -- and have begun themselves -- paring back overseas holdings.
Google shares skidded after Lehman Brothers cut its price target on the stock to $580 from $644 and slashed its earnings forecast to $4.46 a share from $4.67 a share.
Energy stocks rallied as the front-month contract for crude oil rose above $107 a barrel, with notable gains in Valero and Dow component ExxonMobil .
Financial stoawcks declined after another bleak prognosis for the sector.
A day after downgrading the four largest U.S. banks, Oppenheimer analyst Meredith Whitney warned late Wednesday that Merrill Lynch and UBScould suffer write-downs of $6 billion and $11 billion, respectively, as credit problems worsen.
"Many expected the fourth quarter to be the 'kitchen sink' for the industry," Whitney wrote in a separate report dated Thursday. "First-quarter results (will) be a rude awakening."
Whitney's move to cut estimates for Citigroup , Bank of America , JPMorgan Chase and Wachovia sent the sector into a tailspin on Wednesday.
Whitney's calls have been right in the past. In October, she correctly predicted that Citigroup would cut its dividend and raise $30 billion of capital.
In economic news, the Commerce Department held its reading on U.S. economic growth at 0.6 percentin its third and final reading on fourth-quarter GDP.
The consumer spending component of the GDP report was revised to show 2.3 percent growth from the prior estimate of 1.9 percent. Core PCE inflation, a favorite gauge of the Federal Reserve because it strips out volatile food and energy prices, came in at 2.5 percent, down two-tenths of a percent from the prior estimate, but still above the Fed's comfort zone.
The GDP report also contained the first reading on U.S. corporate profits, which fell 3.3 percent during the quarter, more than the 0.1 percent drop economists had expected. But the corporate-profits gauge doesn't include asset write-downs, points out Robert Brusca of FAO Economics, which means it doesn't reflect the recent slowdown but not financial turmoil.
Jobless claims fell by 9,000, more than expected, to 366,000 last week. The four-week moving average, which smooths out weekly volatility, rose by 1,750 to 358,000.
Among other news of interest to Wall Street is today's Fed's Term Lending Facility Auction that will allow brokerages to exchange mortgage assets for government securities.
And, the Chicago Mercantile Exchange raised corn and soybean margins by 50 percent and 30 percent, respectively, in an attempt to curb speculative interest and help traders from losing their shirts amid wild swings in the grain markets.
The U.S.'s number two homebuilder Lennarposted a quarterly loss but beat estimates. Lennar swung to a loss of 56 cents a share from a profit of 43 cents a share a year ago, amid a sharp decline in new orders. But the results were better than Wall Street estimates as the struggling industry continued to post tepid signs of a turnaround.
ConAgra Foods reported a higher-than-expected quarterly profit and raised its fiscal 2008 forecast. The company, whose brands include Healthy Choice meals and Chef Boyardee, also said it would sell its commodity trading and merchandising operations for $2.1 billion in cash and debt.
In other corporate news, Clear Channel Communications said it has won a ruling from a Texas judge that may advance its efforts to force a group of six banks led by Citigroup to finance a $20 billion buyout of the U.S. radio operator.
And Netflix said it expects to lead the market for movies delivered over the web despite growing competition from web giants like Apple and Amazon.
THURSDAY: Fed's Pianalto, Lockhart speak; Fed auction that will allow Wall Street to exchange mortgage assets for government securities
FRIDAY: Personal income and spending; consumer sentiment; KB Home earnings; Fed's Plosser speaks
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