NEW YORK (CNN/Money) -
Faster-than-expected economic growth in the third quarter supported sentiment, if not stock action Thursday, leaving the market little changed by the close.
The Dow Jones industrial average (up 12.08 to 9786.61, Charts) closed up 0.1 percent, the Nasdaq composite (down 3.87 to 1932.69, Charts) closed down 0.2 percent, and the Standard & Poor's 500 (down 1.17 to 1046.94, Charts) index closed down 0.1 percent. The major indexes straddled both sides of breakeven throughout the session.
"This is a very preliminary report, and it will surely be revised downward in the neighborhood of 5 or 5.5 percent, but even that is extraordinary, coming off of last quarter's growth," said Ram Kolluri, chief investment officer at Global Capital Partners. "People know that it will be revised downward, and so maybe they are a little cautious today, but you need to look at the longer-term implications of this."
Gross domestic product, the broadest measure of economic activity, grew at a 7.2 percent annual rate in the quarter, more than double the 3.3 percent rate in the second quarter, the government said. Economists were expecting growth of 6 percent, according to Briefing.com. Consumer spending led the way, jumping to a 6.6 percent growth rate from a 3.8 percent rate last quarter.
The news was encouraging, and stocks surged at the open. But they sold off quickly after, and spent the rest of the day weaving in and out of positive territory.
Stocks have rallied for many months on bets that third- and fourth-quarter corporate earnings would show growth, and that the economic recovery would speed up. With the period of reporting quarterly earnings nearly over and the bulk of earnings coming in stronger than expected, the market has stalled lately. But analysts say strong economic indicators, like Thursday's GDP, could get stocks moving again.
"There had been some worry that with the third-quarter earnings having risen in tune with the stock market's expectations this year, that we didn't have another catalyst," Kolluri added. "But now we see that that's not necessarily the case. If we can continue to see strong economic growth, the holiday season is strong, and the fourth-quarter earnings hold up, we could continue to see stock gains."
Friday brings reports on personal income and spending, as well as the revised reading on consumer sentiment from the University of Michigan and Chicago PMI, a regional manufacturing survey.
Income is forecast to have risen 2 percent last month, after rising 0.2 percent in August, according to Briefing.com. Spending is expected to have dropped 0.1 percent, after rising 0.8% in August.
Normally more market-moving, the final reading on sentiment in October is expected to have edged up to 89.5 from the preliminary 89.4. The Chicago PMI for October is expected to have risen to 55.4 from 51.2 last month.
Anadarko Petroleum (APC: up $0.51 to $42.85, Research, Estimates), ChevronTexaco (CVX: down $1.34 to $71.76, Research, Estimates) and Cigna (CI: down $1.95 to $47.97, Research, Estimates) are among the few companies reporting earnings before the bell Friday.
The movers
Among the stocks leading the market higher were those that benefit most from a faster-growing economy. On the Dow, Honeywell (HON: up $0.98 to $30.46, Research, Estimates) gained 3.3 percent and Alcoa (AA: up $0.86 to $32.15, Research, Estimates) rose 2.75 percent.
Even with all the economic reports, investors still paid attention to individual companies' performance in the third quarter. A profit that fell well below expectations led to a nearly 4 percent selloff in the stock of Dow member Exxon Mobil (XOM: down $1.51 to $36.30, Research, Estimates).
Providian Financial (PROV: up $0.48 to $31.71, Research, Estimates) fell 14.1 percent in active NYSE trade. Late Wednesday, the credit card company reported third-quarter earning per share of 29 cents, up from 15 cents a year earlier and 8 cents higher than analysts surveyed by First Call forecast. But Thursday, UBS Warburg and a few other brokerage firms downgraded the stock and questioned how the company's net income was recorded in the quarter.
Lucent Technologies' (LU: up $0.23 to $3.24, Research, Estimates) shares gained 7.6 percent and topped the NYSE's most-actives list after the company's chairman and CEO, speaking at a conference, said business conditions are stabilizing and reiterated that Lucent should see sustained profitability in 2004, Dow Jones Newswires reported.
A notable standout on the Nasdaq was Akamai Technologies (AKAM: up $2.04 to $8.00, Research, Estimates), which makes software used to build Web content. The stock rallied 34 percent to its highest level in two years after the company reported a smaller-than-expected quarterly loss that narrowed from a year earlier. It was among the 10 most-actively traded issues on the Nasdaq.
Jobless claims dip
Separately, the weekly jobless claims report showed that the number of Americans filing new claims for unemployment last week dipped fractionally, remaining below 400,000, a barometer that can indicate a weak labor market.
Consumer spending and stability in the labor market were two of the positives highlighted by the Federal Reserve's statement earlier in the week, in which the central bank acknowledged the strengthening economy but said that the risk of inflation becoming too low remained. The Fed kept the federal funds rate steady at 1 percent, a 42-year low, and implied it would hold it there for some time.
That news sent markets surging Tuesday and while Thursday morning's reports seemed to support the gains, they didn't spark a particularly aggressive wave of buying.
"All the numbers we saw this morning were good for the market's purposes," said Tom Schrader, head of listed trading at Legg Mason. "GDP growth was certainly positive. Maybe there was a little disappointment that jobless claims didn't drop more, which doesn't bode well for next week's monthly unemployment number."
Some analysts said that there also may be some skepticism about the sustainability of such strong GDP growth.
Market breadth was mixed. On the New York Stock Exchange, winners and losers were pretty evenly split as 1.60 billion shares changed hands. On the Nasdaq, decliners edged advancers on volume of 2.14 billion shares.
The strong GDP report sent Treasury prices lower and the yield on the 10-year note up to 4.34 percent from 4.29 percent late Wednesday. The dollar gained against both the yen and the euro.
NYMEX light sweet crude oil futures fell 44 cents to settle at $28.47 a barrel. COMEX gold fell $2.60 to settle at $384.40 an ounce.
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