Stocks Slump; Industrials Rise; Merck Sinks
Stocks slipped as economic news released Thursday gave investors reason to pause a day after the market reached new multi-year highs.
The Dow Jones Industrial Average dropped less than 10 points after hitting a two-year high on Wednesday.
Merck, Alcoa and Microsoft led blue-chips lower, while DuPont and Caterpillar rose.
The S&P 500 traded flat, while the tech-focused Nasdaq advanced. The CBOE Volatility Index, widely considered the best gauge of fear in the market, rose above 16.
Among key S&P sectors, energy, health care and financials fell, while consumer staples rose.
The dollar skidded against a basket of currenciesafter the jump in jobless claims was reported and as the euro gained, boosted too by a successful auction of Spanish bonds.
Gold benefited from the U.S. economic news, rising to nearly $1,390 an ounce.
"The momentum is for the market to go higher," Brian Battle, vice president of trading at the Performance Trust Capital Partners, told CNBC.com.
Battle's concern, however, is that the "slow melt up" in the markets will force "shorts," out of the market, or those investors who bet that stocks will fall. "If we do get a correction, there’s nobody left to buy," Battle said, adding he isn't sure the economy is good enough to justify current levels.
Battle also said traders were awaiting the results of the 30-year-bond auction expected at 1 p.m. today. The Fed's has been purchasing Treasury securities with maturies ranging from 7 to 10 years in support of the economy, according to the policy known as quantitative easing, meaning there is less support for longer-dated bonds, he said.
If the auction is weak—meaning bond prices fall and yields rise—some investors may think it's a sign the economy is getting stronger, which would lead to more inflation and a justification for higher long-term rates, he said, while others may see higher rates as a drag on the economy as it will make it more expensive for businesses to operate.
Banks weakened after surging Wednesday after brokerages issued upbeat outlooks for the sector.
Bank of America dropped after Citi removed the bank from its "top picks live," list, which is intended for "short-term catalyst driven stocks." The brokerage maintained its "buy" rating on the bank, but said the near-term performance for the stock could be affected by mortgage repurchases and the fact earnings-per-share estimates for 2011 by the Street of $1.47 a share are too high. Citi has an EPS target of $1.15.
Merck sank after the pharmaceutical company ran into problems over clinical trials with a cardiovascular drug called Vorapaxar.
Shares of Marathon Oil surged to the top of the S&P 500 after the company announced it would shed its refinery and pipeline operations into a separate company.
Elsewhere among energy stocks, Citi named the exploration and production sector among its top picks for 2011, specifically citing independent energy producers Anadarko Petroleum , Apache , and Talisman Energy . All, however, traded lower on Thursday as the price of oil continued to rise.
Citi also upgraded Nexen , an independent Canadian energy company, to "buy" from "hold," and downgraded Newfield Exploration to "hold" from "buy" and Range Resources to "sell" from "hold."
The price of oil slipped to about $91.30 a barrel, with losses limited by the fall in the dollar.
General Electric rose after news its energy division was buying a power conversion companycalled Lineage Power Holdings for about $520 million. GE is CNBC's parent company.
Sara Lee's shares jumped after news Kohlberg Kravis Roberts may possibly partner with another party to bid for the food group, according to Reuters, citing two sources familiar with the situation.
Among other food companies, Chipotle gained after Miller Tabak upgraded the restaurant chain to to "buy" from "hold."
And AT&T was trading flat after the telecom company announced Thursday that it expects to take a pre-tax charge of $2.7 billion in the fourth quarter to reflect an accounting change related to pensions and other retirement benefits.
JDS Uniphase , meanwhile, soared past its 52-week high after Stifel Nicolaus raised the telecom service provider's price target to $21 a share from $19.
The U.S. Treasury will sell $13 billion in 30-year bonds today, with the results available shortly after 1 p.m.
Dow component Intel reports fourth-quarter earnings after the bell.
Analysts expect the company to have earned 53 cents per share in the fourth quarter, on revenues of $11.4 billion.
Meanwhile rival Micron jumped after Roberts W. Baird raised its rating on the memory chipmaker to "outperform" from "buy," and Sterne Agee & Leach raised its rating to "buy" from "neutral." Also, Wedbush raised its price target for the company to $15 a share from $11.
Infosys sank after a disappointing earnings report, reflecting the growing strength of the Indian rupee.
In U.S. economic news, initial claims for unemployment benefitsrose by 35,000 to a seasonally adjusted 445,000 for the week ended Jan. 8, the biggest jump since October, according to the Labor Department.
Also, U.S. producer prices gained 1.1 percent in December, after rising 0.8 percent in November, the Labor Department said. Economists surveyed by Reuters had expected the PPI to rise again by 0.8 percent.
And the Commerce Department reported the U.S. trade deficit narrowed to $38.3 billion in November from $38.4 billion the previous month, which was more than expected. The slimmer gap was the result of the biggest rise in exports in two years. Analysts surveyed by Reuters had expected the trade deficit to widen to $40.5 billion.
Meanwhile, the American Association of Individual Investor's weekly poll of investor sentiment showed bullish sentiment fell to 52.3 percent this week, atlhough optimism that stock prices will continue to rise was above the historical avearge of 39 percent for the 19th straight week, the AAII said.
The eight-week average for bullish sentiment, however, is 53 percent, the highest level since Jan. 6, 2005.
European shares slipped back from 28-month highs on Thursday, ahead of yesterday's rate decisions from the Bank of England and the European Central Bank, but after a successful Spanish bond auction.
Spain's banking sector does not need more government support and the country will not need a bailout from the European Union, Elena Salgado, vice-president of the Spanish government and finance minister, told CNBC in an interview Thursday.
On Tap This Week:
THURSDAY: 30-year Treasury bond auction; after-the-bell earnings from Intel.
FRIDAY: CPI, retail sales, industrial production, consumer sentiment, business inventories, Richmond Fed president speaks; before-the-bell earnings from JPMorgan.
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