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Stocks End Lower; S&P Holds Above 1,000

Published: Wednesday, 5 Aug 2009 | 5:18 PM ET

Text Size

By: Cindy Perman
Writer

Stocks ended lower Wednesday, despite a late attempt at a recovery, as disappointing readings on the service sector and employment situation, as well as a cautious outlook from Dow component P&G, fueled concerns about the economic recovery.

The Dow Jones Industrial Average lost 0.4 percent, erasing the prior session's gain. The S&P 500 shed 0.3 percent but held above the 1,000 mark, a level it achieved Monday for the first time since November. The Nasdaq tumbled 0.9 percent.

Major U.S. Indexes

.DJIA

.NCOMP

.SPX

The service sector is a crucial component for the recovery, representing 80 percent of economic activity.

The ISM reported its service-sector index fell to 46.1 in July from 47 in June. Economists had expected the gauge to rise to 48. Any readings below 50 indicate contraction.

"[T]he level of the overall index remains consistent with basically stagnant conditions," Joshua Shapiro, an economist at MFR Inc., wrote in a note to clients. "While some further drift upward is possible, we do not expect this indicator to flash a sustained 'all-clear' signal anytime soon."

This came despite another encouraging reading on manufacturing: Factory orders unexpectedly rose 0.4 percent in June.

FOR INVESTORS

Earlier, a pair of bleak readings on employment set the mood for today's trading.

ADP said 371,000 jobs were cut from private-sector payrolls in July, more than the 335,000-loss expected.

This came after Challenger, Gray & Christmas reported that planned job cuts jumped 31 percent last month.

Both reports are being watched closely ahead of Friday's jobs report from the government, which is expected to show 320,000 jobs were dropped from nonfarm payrolls in July, following a loss of 467,000 in June.

Still, the White House was optimistic that the worst may be over.

"We have pulled far back from the edge of descending into another economic depression" White House spokesman Robert Gibbs said.

And ADP said the U.S. is on track for job growth in early 2010.

Oil settled above $71 a barrel, despite a bump in crude supplies, as speculation of a slowdown in job losses buoyed recovery hopes.

Banking was among the few advancing sectors today. Bank of America [BAC Loading... () ] and JPMorgan [JPM Loading... () ] were the biggest percentage gainers on the Dow.

And Citigroup [C Loading... () ] shot up 10 percent after CEO Vikram Pandit announced plans to sell 20 businesses in the consumer finance area, most of them in Europe.

Trading in Citi was heavy today as the bank recently completed an exchange of its preferred stock for common stock; the S&P will be rebalanced at the close today to reflect Citi's increased weighting in the index.

AIG [AIG Loading... () ] soared 63 percent to $22 in what some market pros said was a short squeeze ahead of Friday's earnings report, which is expected to show signs of stabilization for the first time in five years. A short squeeze occurs when traders rush to cover their bets against the stock by buying it, amid fears that it will start to go up. There was also speculation that AIG is preparing a debt-equity swap with the government.

Trader Talk: What's Driving AIG?

Ford [F Loading... () ] advanced 1.7 percent after Toyota's chairman said the US auto market will recover and be stronger than ever.

General Motors' [MTLQQ Loading... () ] chairman said the board told management this week to roll out new vehicles faster.

A Senate vote on extending the "Cash for Clunkers" program could happen this week, though party bickering may push it to Saturday, Sen. Maj. Leader Harry Reid said.

The big earnings news this morning was from Procter & Gamble [PG Loading... () ]. The company, which makes Tide laundry detergent and Pampers diapers, beat expectations but delivered a cautious outlook for the current quarter. Its shares fell 2.8 percent.

Cisco [CSCO Loading... () ] shares lost 1.2 percent ahead of earnings, released after the bell.

Meanwhile, Japanese electronics maker Sony [SNE Loading... () ] is about to take on Amazon [AMZN Loading... () ], offering a cheaper digital-book reader, which will sell for $199 and $299, with the difference being the size of the screen. Amazon's Kindles sell for $299 and $489. The Sony reader will be available through Wal-Mart and Best Buy. Amazon shares dropped 1.8 percent.

Kraft Foods [KFT Loading... () ] ended flat after the mac-and-cheese maker beat earnings estimates after the bell Tuesday but sales disappointed.

Electronic Arts [ERTS Loading... () ] shares really took a hit, sliding 6.8 percent, after the videogame maker reported a smaller-than-expected loss but said revenue tumbled 20 percent.