September stock rally halted after surprise drop in consumer sentiment

Stephen Bernard, AP Business Writer, On Friday September 17, 2010

Stocks pulled back modestly Friday after a discouraging report on consumer sentiment tempered recent signs of economic growth and upbeat earnings from the technology sector.

The Dow Jones industrial, which had been rallying throughout the month, fell nearly 10 points in morning trading. Broader indexes were mixed.

 

Stocks started the day with strong gains following upbeat earnings from BlackBerry maker Research in Motion Ltd. and software company Oracle Corp. But the surge was short-lived because traders were disappointed to see that consumer confidence is falling again.

 

A healthy, confident consumer is vital to a sustained recovery because they spend more. Retail sales are a primary driver of economic activity in the country.

A preliminary September reading of the University of Michigan/Reuters’ consumer sentiment index fell from August levels. Economists polled by Thomson Reuters had forecast an increase, which would have followed the trend seen in other economic reports in recent weeks that the economy continues to improve slowly.

 

The Dow fell 8.17, or 0.2 percent, to 10,586.05 in morning trading. It had been up as much as 55 before the consumer sentiment report was released.

 

The tech-heavy Nasdaq composite index held onto some of its gains tied to strong results from Oracle and Research in Motion. It rose 4.26, or 0.2 percent, to 2,307.51.

 

The Standard & Poor’s 500 fell 0.28, or less than 0.1 percent, to 1,124.38.

 

Traders will be closely watching the 1,131 level on the S&P 500 because that is the high end of its recent trading range. The S&P 500 briefly crossed that threshold just after the opening bell.

 

For traders that make moves based on technical indicators breaking out above that level would indicate the market is ready to extend its rally and could trigger a rush of buying. Being unable to move significantly above 1,131 could lead to a sell-off. Many automated trading platforms have buy and sell orders set around such indicators.

 

Volume is exceptionally high and volatility increased Friday because of what is known as “quadruple witching.” It occurs on a day when stock index futures, stock index options, stock options and single stock futures all expire, so volume can pick up as investors settle those contracts.

 

Falling stocks narrowly outpaced those that rose on the New York Stock Exchange where volume came to 562.6 million shares.

 

Oracle reported fiscal first-quarter earnings that easily topped forecasts after the market closed Thursday. Oracle shares jumped $1.62, or 6.4 percent, to $26.98.

 

Research in Motion also reported a big jump in earnings as it added new subscribers. An increase in subscribers is also vital because there have been concerns customers were dumping Blackberrys for Apple Inc.’s iPhone and smart phones run on Google Inc.’s Android technology.

 

Its co-CEO also said he is confident the company will resolve disputes with India, the United Arab Emirates and other countries over data security and avoid threats the service will be banned in those countries. Cutting service in those areas would be a severe blow to Research in Motion’s business.

 

Research in Motion shares jumped $1.24, or 2.3 percent, to $47.73.

 

In other corporate news, Johnson & Johnson said it plans to buy Dutch biotechnology firm Crucell NV for $2.29 billion. The move would strengthen Johnson & Johnson’s vaccine business.

 

Corporate dealmaking has picked up in recent weeks. Deals are a sign that companies are more confident about spending money they’ve held onto during the recession and more optimistic about potential growth in the coming quarters.

Johnson & Johnson rose fell 1 cent to $61.28.

 

Money flowed into Treasurys again after the weak consumer sentiment reading and the Labor Department said prices at the consumer level rose modestly in August due to higher energy costs. Excluding volatile food and energy prices, inflation showed no increase. That could give the Federal Reserve the room to start purchasing more Treasurys and mortgage bonds in an effort to further stimulate the economy. Without inflation as a worry, the Fed would probably be more comfortable ramping up purchases of bonds as a way to try and further depress interest rates.

 

The yield on the 10-year Treasury note, which moves opposite its price, fell to 2.72 percent from 2.76 percent late Thursday. Its yield is often used to set interest rates on mortgages and other consumer loans.

 

Gold touched a new record high again Friday of $1,284.40 an ounce before pulling back to $1,276.00 an ounce.

 

Source: Associated Press