NEW YORK (CNN/Money) -
Investors likely will turn their eyes to the economy Thursday, save any new reports on war tensions with Iraq, after a day of uncertainty gave way to a sharp rally and swift decline on geopolitical concerns following Secretary of State Colin Powell's remarks before the United Nations Wednesday.
Stocks initially jumped when Powell told the Security Council that Iraq had made "no effort" to disarm in what some thought would be a pivotal moment in the showdown with Iraq over its alleged violation of U.N. resolutions concerning weapons of mass destruction. He also showed images of areas that he said have housed chemical munitions. (For full CNN.com coverage, click here).
"Saddam Hussein and his regime have made no effort, no effort, to disarm," Powell told the council. Concerns about a possible war with Iraq and its impact on the economy have pressured stocks, pushed gold higher and hurt the dollar in recent months.
Powell concluded his remarks by emphasizing the obligation of the United Nations and its representatives to their citizens and to the organization itself to act. He suggested that no action could make the United Nations irrelevant in its supervisory role.
But the reality of a possible conflict with Iraq and the questionable level of support from the United Nations pushed the major indexes lower after Iraq U.N. ambassador Mohammed Aldouri denied the validity Powell's evidence, and the level of support from U.N. delegates appeared to remain virtually the same.
"We didn't see any major change out of France or Germany," said Peter Cardillo, director of research at Global Partners Securities. "While the reaction to Mr. Powell's speech at the United Nations obviously was positive, I think when people realized that Germany was not changing its stance and France wasn't softening too much, it was back to worries of uncertainty."
Germany and France, which are members of the U.N. Security Council, have both been adamant about not taking military action against Iraq.
The major indexes all ended the day lower, with the Dow Jones industrial average (down 28.11 to 7985.18, Charts) and the Nasdaq composite (down 4.65 to 1301.50, Charts) each slipping about 0.3 percent and the Standard & Poor's 500 index (down 4.61 to 843.59, Charts) dropping about 0.5 percent.
Traders said the market found encouragement from Powell's case against Iraq, with investors buying on the notion that the United States was taking the moral high ground. But it also brought the possibility of war that much closer.
"I thought [Powell] did a great job. It was a constructive speech," said David Briggs, head of equity trading at Federated Investors. "The key question on everyone's mind is, 'What now?' We'll have to see how the delegates react."
Briggs added that some investors tried to "trade the market up" on light volume during the Powell speech, which may have magnified the move higher and subsequent decline.
On Thursday, stocks will get a dose of economic data, with new weekly jobless claims and initial productivity numbers to be released before the opening bell.
Economists expect that new jobless claims fell to 390, 000 last week from 397,000 the preceding week, according to Briefing.com.
But the real test of job strength will come on Friday with the release of the monthly employment numbers for January. Economists estimate 69,000 jobs were added last month, compared with a loss of 101,000 jobs in December, according to Breifing.com. They also see the January unemployment rate remaining at December's 6.0%.
The Labor Department also will release preliminary productivity numbers for the fourth quarter on Thursday. A consensus of economists surveyed by Briefing.com expected the level to rise 0.7 percent, compared with a rise of 5.1 percent in the third quarter.
"The markets for the next couple of days will focus on some economic data, until the chief weapons inspector returns," Cardillo added.
Several companies report quarterly earnings Thursday, including animation provider Pixar (PIXR: Research, Estimates), snack and beverage maker PepsiCo (PEP: Research, Estimates), and miner Newmont Mining (NEM: Research, Estimates).
Markets get mixed corporate news
Throughout the day Wednesday, investors digested some news about the economy and individual stocks.
Prudential upgraded aluminum producer Alcoa (AA: up $0.52 to $19.84, Research, Estimates) to "buy" from "hold," saying the aluminum market seemed to be regaining strength on a weaker dollar and growth in U.S. and Asian demand. The stock is one of 30 in the Dow industrials.
Long-distance provider Sprint (FON: up $0.16 to $12.52, Research, Estimates) said it swung to fourth-quarter profit from a loss a year ago due to cost-cutting and stood by its 2003 guidance. Separately, the Wall Street Journal reported two top executives at Sprint were forced to resign after a dispute with the board over their use of a tax shelter.
After the close Tuesday, networking company Cisco Systems (CSCO: down $0.01 to $13.19, Research, Estimates) reported better-than-expected fiscal second-quarter earnings but warned sales in the current quarter could be 2 or 3 percent lower than the previous quarter.
El Paso (EP: down $1.80 to $6.20, Research, Estimates) warned before the market opened it sees 2003 earnings of $1 share, well below the $1.32 consensus of analysts surveyed by First Call. The energy firm also said it will slash its dividend by about 82 percent and sell nearly $3 billion in assets in an effort to conserve cash.
Tuesday, war jitters sent the Dow Jones industrial average down 1.2 percent, the Nasdaq down by 1.3 percent and the S&P 500 off 1.4 percent.
Asian-Pacific stocks ended mostly lower, although Tokyo's Nikkei index managed a slim gain. Most European markets ended higher after Powell's comments.
Treasury prices fell on the strength in equities, pushing the 10-year note yield up to 4.00 percent from 3.93 percent late Tuesday. Bond prices and yields move in opposite directions.
The dollar, which hit a new four-year low against the euro earlier in the day, regained some losses to rise versus the euro and the yen after midday. Also, oil prices came off their morning highs with light crude oil for April delivery ending the day up 35 cents at $33.93 a barrel.
Gold, traditionally considered a safe-haven investment, fell $2.70 to $377.20 an ounce. The metal has risen 15 percent so far this year.
Traders attributed the pullback in oil and gold to the lack of anything unexpected in Powell's speech and the light trading volumes earlier in the day.
Market breadth was negative. On the New York Stock Exchange, decliners edged past advancers 9 to 7 as 1.4 billion shares traded. On the Nasdaq, losers also beat winners 9 to 7 as 1.3 billion shares changed hands.
The markets reacted little to a report from the Institute for Supply Management saying its index for activity in the service economy rose to 54.5 in January from 54.2 in December. Economists expected the index to edge down to 54, according to a consensus of economists surveyed by Briefing.com.