NEW YORK (CNN/Money) -
U.S. stocks closed modestly lower on the session and on the week Friday, however early January gains were sufficient to keep the major indexes in positive territory for the month.
The Dow Jones industrial average (down 22.22 to 10488.07, Charts) and the Standard & Poor's 500 (down 2.98 to 1131.13, Charts) index both closed down around 0.2 percent. The Nasdaq composite (down 2.08 to 2066.15, Charts) closed 0.1 percent lower.
Worries about weaker-than-forecast gross domestic product growth pressured the major indexes for most of the session, in particular, the Dow and S&P 500, but all three managed to recover by the close.
Stocks rallied Monday, but struggled through the rest of the week. The Dow lost 0.7 percent and the Nasdaq lost 2.7 percent, both closing lower for the second week in a row. The S&P closed 0.9 percent lower this week and was flat last week.
The first two weeks of January were strong for Wall Street, but this week and the one before it brought setbacks. The Dow closed up 0.3 percent, the S&P 500 gained 1.7 percent and the Nasdaq gained around 3.1 percent year-to-date.
Although the last two weeks' pullback has been discouraging for some, the year still looks good to those who follow the so-called January Barometer. According to the Stock Trader's Almanac, since 1950, the way the S&P 500 acts in January tends to predict how the stock market will do all year.
"What's interesting is that the Dow lagged the other indexes last year and if you look at January, that seems to be the pattern so far this year as well," said Donald Selkin, director of research at Joseph Stevens. "he market is still doing really well. Gains this year are not expected to be as substantial as last year, but there are still plenty of factors supporting the market."
Monday brings reports on personal income and personal spending before the start of trade and reports on construction spending and manufacturing after the open.
Earnings reports are due before the open from a few key issues, including Dow component International Paper, which is forecast to have earned 19 cents per share, down from 33 cents a year earlier.
Economic news confuses
The first reading on gross domestic product growth in the fourth quarter was weaker than expected. GDP grew at a 4 percent annual rate in the fourth quarter after growing at an 8.2 percent rate in the third quarter. Economists knew GDP growth would slow, but they thought it would slow less substantially in the quarter, to an annual rate of 4.8 percent, according to a Reuters survey.
This was particularly disappointing in that some market watchers had thought the Federal Reserve's changed language in its monetary policy statement earlier this week (seen as suggesting interest rates would rise sooner than previously thought) meant the upcoming economic data -- including the GDP report -- would be even stronger than forecast.
"The Fed is not going to raise rates until they see several months of strong job growth," Selkin added. "And even if they do raise rates slightly, the rates will still be right near these historic lows. GDP this morning was not as strong as expected, but you had the other two economic reports that were good."
Countering the not-so-strong GDP report, the University of Michigan revised its consumer confidence index for January to 103.8 from the original reading of 103.2. Adding to that, the Chicago Purchasing Managers Index, a survey of manufacturing activity in the Midwest, surged to its highest level since July 1994. The index climbed to 65.9, well above forecasts for a reading of 62.1 in January from 59.2 last month.
"There's some worry that the economic growth won't be as strong as had been hoped and that's taking stocks lower," said Peter Green, a technical market analyst at MKM Partners. "It's the combination of GDP not growing as fast as had been hoped, and the Dow Transports, which is a leading economic indicator, falling as well."
The Dow Transportation (Charts) index lost 2.9 percent, due to declines in a variety of its components, including Yellow Roadway (YELL: down $5.01 to $31.40, Research, Estimates). The recently merged trucking firm's shares fell 13.7 percent after the company reported disappointing sales at its Roadway unit and forecast overall first-quarter earnings that will miss forecasts.
In corporate news, Walt Disney (DIS: down $0.45 to $24.00, Research, Estimates) fell 1.8 percent after Pixar Animation Studios (PIXR: up $2.19 to $66.39, Research, Estimates) ended discussions to renew its deal for Disney to distribute Pixar films, announced late Thursday. Pixar's stock rallied almost 4 percent.
Also among the losers on the Dow, General Motors (GM: down $1.03 to $49.68, Research, Estimates) fell 2 percent after Goldman Sachs downgraded the stock to "in line" from "outperform."
And Coca-Cola (KO: down $0.35 to $49.24, Research, Estimates) lost 0.7 percent after three former executives told federal investigators that the company overstated its results in recent years.
Winn-Dixie Stores (WIN: down $2.53 to $6.56, Research, Estimates), one of the S&P 500's worst stock performers of 2003, dropped more than 28 percent in active NYSE trade. On Friday, the grocery chain reported a quarterly loss, surprising analysts who had forecast a small profit, and reversing a profit from a year earlier. The company also said it was suspending its dividend indefinitely and indicated it would close stores. Following the news, ratings agency Standard & Poor's cut its corporate debt rating deeper into junk status and said it may cut it again.
On the Nasdaq, Gilead Sciences (GILD: down $5.88 to $54.81, Research, Estimates) fell 9.7 percent in active trade. The biotech late Thursday reported higher earnings from a year earlier that met expectations. However, sales for its lead HIV treatment Viread were perhaps not as strong as hoped for. Following the news, Merrill Lynch led a plethora of brokerages downgrading the stock and/or cutting earnings forecasts for 2004 and 2005, citing Viread sales prospects, among other concerns.
PeopleSoft (PSFT: down $1.42 to $21.57, Research, Estimates) shares fell 6.2 percent in active Nasdaq trade after the company reported quarterly earnings late Thursday that fell from a year earlier and forecast current-quarter sales that are less than what analysts are looking for.
On the upside, Nortel Networks (NT: up $1.24 to $7.82, Research, Estimates) rallied 19.4 percent and topped the NYSE's most actives list after the company posted higher-than-forecast fourth-quarter earnings that grew from a year earlier and topped estimates, amid a recovery for telecom gear makers. Following the news, Deutsche Bank Securities, Credit Suisse First Boston and a variety of other brokerages raised either their 12-month price target on the company, or their 2004 earnings forecasts.
The Nortel gains gave a boost to Lucent Technologies (LU: up $0.13 to $4.48, Research, Estimates) as well. Lucent shares gained 3 percent and placed No. 2 on the NYSE's most-actives list.
Market breadth was narrowly positive. Winners edged losers by a narrow margin on the New York Stock Exchange where 1.57 billion shares changed hands. On the Nasdaq, where 1.87 billion shares traded, advancers beat decliners eight to seven.
Treasury prices inched up, though their gains were trimmed after the release of the unexpectedly strong PMI report. The 10-year note was 10/32 of a point higher for a yield of 4.13 percent, compared with 4.17 percent late Thursday. The dollar fell versus the euro and was little changed against the yen.
NYMEX light sweet crude oil futures rose 24 cents to settle at $33.05 a barrel. COMEX gold rose $3.50 to settle at $402.90 an ounce after selling off sharply in the previous session.