Stocks waver as economic growth still slow; traders cautious before election, Fed meeting
, On Friday October 29, 2010
NEW YORK (AP) — Stock wavered Friday after a report on economic growth did little to reassure investors about the health of the economy, but also reinforced expectations the Federal Reserve will act to stimulate the economy as early as next week.
The Dow Jones industrial average fell 10 points in morning trading.
The gross domestic product, the broadest measure of the nation’s economy, grew at a 2 percent annual pace in the third quarter. That was in line with economists’ expectations and only slightly better than the 1.7 percent growth rate during the second quarter.
Signs of meager growth come as investors grow more cautious heading into next week’s midterm elections and are uncertain about the size of economic stimulus measures the Federal Reserve is expected to announce next week.
Normally such slow GDP growth would have driven stocks much lower. But signs of weak economic expansion provide further support for the Fed’s anticipated stimulus plan.
Stocks rose sharply during the first half of October as expectations mounted that the Fed would start buying Treasury bonds to drive interest rates lower. That, in turn, is supposed to spark spending and lending. In recent days, however, the size of the bond-buying program has been questioned, putting a market rally on hold.
The market could be stuck in a holding pattern until the Fed wraps up its meeting Wednesday where it is expected to announce details about the bond-buying program.
A day before the Fed completes its meeting, voters will head to the polls for the midterm elections. Traders have been betting that Republicans will at least take control of the House of Representatives, which could slow government action.
Analysts say uncertainty over tax issues and potential costs from health care and financial regulation reform bills have been major reasons employers have been hesitant to start hiring new workers. The results of the election should provide more clarity about those questions.
With so many people unsure about their jobs, they have cut back on their spending, which accounts for the biggest piece of the nation’s economy. While the latest GDP report showed a rise in consumer spending, its still well below pre-recession levels.
The Dow rose fell 10.22, or 0.1 percent, to 11,103.73 in morning trading.
The Standard & Poor’s 500 index fell 1.50, or 0.1 percent, to 1,182.28, while the Nasdaq composite index rose 4.37, or 0.2 percent, to 2,511.74.
Bond prices rose slightly following the GDP report. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 2.64 percent from 2.66 percent late Thursday.
Signs of a weak economy often help Treasurys because they benefit from investors seeking safety during periods of uncertainty.
In corporate news, another mixed batch of earnings added to the lack of market direction. Microsoft Corp.’s shares rose after the computer software maker said its profit jumped because businesses increased their spending on technology.
Businesses have been quicker to spend coming out of the recession on new technology to improve efficiencies than spend to hire new workers. It has helped many companies beat earnings expectations in recent quarters even though for many U.S. sales remain weak.
Merck & Co. and Chevron Corp. both fell following disappointing results. Merck was hurt by disappointing revenue figures, while Chevron fell short of earnings forecast after charges tied to foreign exchange.
Source: Associated Pres
