Stocks recover from early losses, fluctuate as investors reconsider second-quarter GDP report

Stephen Bernard, AP Business Writer, On Friday July 30, 2010, 11:47 am

 

Stock prices are fluctuating after investors found some upbeat news in the government’s assessment of the economy during the April-June quarter.

 

The Commerce Department says the gross domestic product, the broadest measure of the economy, grew at an annual pace of 2.4 percent from April to June. That’s less than the 2.5 percent economists forecast.

 

As investors read deeper into the report Friday, it didn’t look as bad as initially thought. Savings are up and businesses are increasing spending.

 

The Dow Jones industrial average is down 14.01, or 0.1 percent, at 10,453.08. The Standard & Poor’s 500 index is down 2.01, or 0.2 percent, at 1,099.52, while the Nasdaq composite index is down 1.57, or 0.1 percent, at 2,250.12.

 

THIS IS A BREAKING NEWS UPDATE. Check back soon for further information. AP’s earlier story is below.

 

Stock prices fluctuated Friday after investors found some upbeat news in the government’s assessment of the economy during the April-June quarter.

 

The Dow Jones industrial average, down almost 120 points in the first minutes of trading, recovered and was up 3 in late morning. The other major indexes also wiped out their losses and were slightly higher.

 

Still, some traders were cautious and opted for the safety of Treasury bonds instead of riskier stocks. That helped push interest rates lower.

 

The Commerce Department said the gross domestic product, the broadest measure of the economy, grew at an annual pace of 2.4 percent from April to June. That’s less than the 2.5 percent economists polled by Thomson Reuters had forecast.

 

 

At first the report confirmed investors’ belief that the recovery is weakening as unemployment remains high and government stimulus programs end. Consumers cut back on their spending because of job worries and companies spent less to rebuild inventories.

 

But analysts said that as investors read deeper into the report, it didn’t look as bad as they initially thought. They found some good news in consumers’ savings rate.

 

“The consumer actually decided to save more,” Jason Pride, director of investment strategy at Glenmeade, an investment management company. “Consumers have done more to repair their balance sheets than thought.”

 

Pride said that means that those extra savings will eventually be spent, giving the economy a lift. Consumer spending accounts for the bulk of economic activity.

 

Business spending on equipment and software jumped in the second quarter by the biggest amount in 13 years. That was encouraging, analysts said, because it means companies are eventually going to start adding jobs.

 

“Companies are spending and eventually it will turn into employment,” said Ron Weiner, president and CEO at RDM Financial Group. “Eventually they need to hire people to run the computers” they are buying, Weiner said.

 

Investors also got some mildly good news from two other reports. The University of Michigan/Reuters consumer sentiment index for July rose slightly more than expected to 67.8 from a preliminary reading of 66.5. Economists expected it to rise to 67.

 

And the Chicago Purchasing Managers Index, which measures manufacturing activity in the Midwest, rose unexpectedly to 62.3 this month from 59.1 in June. Economists were expecting a drop to 56.5. The report is seen as an indicator of how the Institute for Supply Management’s nationwide index is likely to come in when it’s released on Monday.

 

In late morning trading, the Dow Jones industrial average rose 3.10, or less than 0.1 percent, to 10,470.56. The Standard & Poor’s 500 index fell 0.17, or less than 0.1 percent, to 1,101.36, while the Nasdaq composite index rose 1.13, or 0.1 percent, to 2,252.82.

 

The Dow entered the last day of July up 7.1 percent for the month. The market’s big gains have come on strong corporate earnings and profit forecasts that conflict with economic reports that point to a slowdown.

 

Rising stocks were ahead of losers by 4 to 3 on the New York Stock Exchange where volume came to 315.5 million shares.

 

Even as some investors moved back into stocks, many stayed in safer Treasurys. The yield on the 10-year Treasury note, which moves opposite its prices, fell to 2.93 percent from 2.99 percent. Its yield is often used as a benchmark for interest rates on mortgages and other consumer loans.