Stocks posted their first noteworthy losses of 2006 Thursday as analyst downgrades of two Dow Jones industrials and rising oil prices prompted investors to take profits one session after the major indexes reached new multiyear highs.
Analysts said The Coca-Cola Co. and JPMorgan Chase & Co. could face difficulties in 2006 as the economy slows and consumers limit their spending — both of which could have a much broader impact on stocks as the year goes on.
Oil prices initially rose, deepening stocks’ losses, but ultimately lost ground and settled at $63.94, unchanged from the previous session, on the New York Mercantile Exchange. The volatility was prompted by the breakdown of talks with Iran over its restarted nuclear research program.
Yet despite the losses and lingering uncertainties, analysts said Wall Street’s January rally likely would continue.
“You’re seeing some selling now, some consolidation maybe, but I’d be cautious of that. The market’s been very resilient,” said Brian Williamson, equity trader at The Boston Company Asset Management. “Investors have been very quick to buy if they get a little good news.”
The Dow Jones industrial average fell 81.08, or 0.73 percent, to 10,962.36.
Broader stock indicators also fell. The Standard & Poor’s 500 index lost 8.12, or 0.63 percent, to 1,286.06, and the Nasdaq composite index dropped 14.67, or 0.63 percent, to 2,316.69.
Bonds climbed on news of the narrowing trade gap, with the yield on the 10-year Treasury note falling to 4.41 percent from 4.45 percent late Wednesday. The dollar fell against most major currencies, while gold prices rose.
A slight rise in unemployment claims, fewer than Wall Street had expected, failed to encourage investors. The Labor Department said the number of new claims for unemployment benefits rose by 17,000 last week to 309,000, lower than 24,000 gain economists expected.
With the economic data still strong and corporate profits still expected to remain strong as fourth-quarter earnings season begins in earnest next week, analysts saw the day’s losses as an isolated occurrence, rather than a halt to the January rally.
“I think it’s relatively healthy. Nothing goes straight up. We know that. There needs to be a little consolidation before you can go higher,” said Joseph Keating, chief investment officer at First American Asset Management. “Between the situation in Iran and the Dow downgrades, it’s probably been a nice little excuse to take a few profits.”
The downgrades of Coca-Cola and JPMorgan Chase weighed on the Dow. Coca-Cola dropped 23 cents to $41.44 after Goldman Sachs lowered its rating on the beverage maker to “in-line” from “outperform” on the belief that 2006 won’t be a breakout year for the company.
And Piper Jaffray cut JPMorgan Chase to “market perform” from “outperform,” saying the financial services company could see business slow down in the coming year, especially in stock trading and consumer loans. JPMorgan Chase slid 75 cents to $39.95.
Guidant Corp. fell 4 cents to $70.40 after Dow industrial Johnson & Johnson sweetened its bid for the medical device maker to $23.2 billion. However, the bid, which was endorsed by Guidant’s board, remains lower than the $25 billion offer from rival Boston Scientific Corp. Johnson & Johnson lost 29 cents to $62.21, while Boston Scientific, which said it plans to continue pursuing Guidant, slipped 36 cents to $25.05.
Dow component The Home Depot Inc. is the subject of an informal probe by the Securities and Exchange Commission, according to The New York Post. The newspaper said regulators are looking at allegedly inflated payments collected from suppliers to cover the cost of damaged merchandise. Home Depot dropped 40 cents to $42.55.
RadioShack Corp. fell 31 cents to $21.49 after it said full-year earnings won’t meet previous forecasts, although total sales rose 5 percent in the fourth quarter. The company, however, said its sales growth came through low-margin products, while high-margin sales declined.
Declining issues outnumbered advancers by about 2 to 1 on the New York Stock Exchange, where preliminary consolidated volume came to 2.35 billion shares, compared with 2.43 billion traded on Wednesday.
The Russell 2000 index of smaller companies fell 4.40, or 0.62 percent, to 706.79.
Overseas, Japan’s Nikkei stock average rose 0.5 percent. In Europe, Britain’s FTSE 100 closed up 0.06 percent, France’s CAC-40 lost 0.01 percent for the session, and Germany’s DAX index gained 0.17 percent.