Wall Street pulled back Thursday, as investors cashed in profits amid disappointing consumer sentiment data and rising oil prices. Losses in the technology sector were stemmed by better-than-expected results from Cisco Systems Inc.
The lackluster session was to be expected after three days of gains, including a new closing high Wednesday for the Dow Jones industrials. Investors had driven stocks broadly higher on optimism that Democrats taking control of Congress would cause political gridlock that would be favorable to businesses.
Investors sifted through new economic data Thursday. U.S. consumer confidence was slightly weaker in early November, but stayed near a 15-month high according to the University of Michigan.
The market got some good news when the Commerce Department reported America’s trade deficit showed a sharp improvement in September. Meanwhile, the Labor Department said the number of newly laid off workers had a bigger than expected drop last week.
Peter Dunay, an investment strategist with New York-based Leeb Capital Management, said the consumer sentiment data and a jump in oil above $60 won’t necessarily hurt the market. He said now that investors have moved past the elections, stocks will continue to show strength.
“We had moved to new all time highs on the Dow, and there was a lot of strength in the Nasdaq composite and S&P 500,” he said. “It’s now about the fundamentals.”
The Dow Jones industrial average finished the day down 73 points, or 0.6 percent. The Dow reached a new closing high of 12,176.54 on Wednesday.
The broader Standard & Poor’s 500-stock index slipped 7 points, or 0.5 percent, while the Nasdaq composite index dipped 9 points, or 0.4 percent.
Crude prices extended their gains after the U.S. government reported gasoline inventories fell last week.
Going forward, investors will be relying on signs of the country’s economic health, as well as energy prices, for the stock market’s direction now that third-quarter earnings reports are largely in.
“The market’s going to be on guard for any signs that the soft landing is going to be harder than people are anticipating,” said John Caldwell, chief investment strategist for McDonald Financial Group, part of Cleveland-based KeyCorp.
Stocks have been on a tear in recent months, but last week, they cooled on worries that corporate profits may not hold up in a slowing economy. Prior to Monday’s 119-point gain in the Dow, the market’s best-known index closed lower for six straight sessions for the first time since June 2005.
In addition to economic reports and energy prices, investors will be watching merger and acquisitions activity, and any sign that corporate earnings might be pulling back.
“As we go into next year, one of our concerns — and it’s something we worried about this year, but it didn’t come to fruition — that earnings growth is going to slow at some point,” Caldwell added. “It’s simple math ... You can’t maintain double-digit earnings growth forever.”
Still, he noted, many catalysts that helped buoy the market this year, notably strong M&A activity, are still in place.
Cisco surged $1.65, or 7 percent, to $26.75. The world’s biggest networking equipment maker said its acquisition of Scientific-Atlanta Inc. pushed its profit up 28 percent. UBS also upgraded the stock on the results, and predicted strong future growth.
Hewlett-Packard Co. also helped drive technology stocks after Goldman Sachs lifted the computer and printer maker’s 12-month price target to $46 from $42.50. Shares rose 73 cents, or 2 percent, to $39.61.
Merck & Co. fell $1.38, or 3 percent, to $42.96, after the pharmaceutical company said liabilities from four tax disputes in the U.S. and Canada could total $5.58 billion. The drug maker faces tens of thousands of lawsuits over its withdrawn painkiller Vioxx.
J.C. Penney Corp. posted a profit that surpassed Wall Street projections, and raised its full-year financial forecast. Shares of the retailer rose $1.31, or 2 percent, to $79.51.
Viacom Inc. fell after the entertainment conglomerate reported a 16 percent slide in profit for the third quarter. The company also announced Chief Financial Officer Michael J. Dolan will step down at the end of the year. Shares fell $1.30, or 3 percent, to $38.37.
Overseas, Japan’s Nikkei stock average closed lower by 0.11 percent. In Europe, Britain’s FTSE 100 closed down -0.12 percent, Germany’s DAX index rose 0.15 percent and France’s CAC-40 closed up 0.21 percent.