The U.S. economy continued to improve modestly in February despite uncharacteristically severe weather in many regions of the country, the latest Federal Reserve report on economic conditions reports.
Nine of the Fed’s 12 regional banks — including the New York Bank which encompasses Buffalo and Upstate — reported in the U.S. central bank’s Beige Book survey that economic activity improved last month.
Two districts, St. Louis and Atlanta, reported a more mixed performance and one district, Richmond, Va., was snowed under by winter storms.
The survey is a collection of anecdotes compiled by the Fed to give policy makers a feel for conditions across the country as they prepare for the next meeting on March 16 to plot monetary policy strategy.
Among the survey’s findings: Credit conditions have not improved and businesses still are unable to obtain credit, which is a critical factor behind the sluggish pace of growth creditreport.
Also, loan demand remains weak and banks are sticking to tight standards.
There were no signs in February of an improving labor market, though the pace of layoffs slowed.
Consumers appeared somewhat more willing to spend, the survey found, and demand for services was generally positive.
Manufacturing activity was stronger, but worries persisted about whether it was a result of customers restocking their shelves and unlikely to result in sustained improvement.
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SHANGHAI—Google is investigating whether one or more employees may have helped facilitate a cyber-attack from China that the U.S search giant said it was a victim of in mid-December, two sources told Reuters on Monday.
Google, the world’s most popular search engine, said last week it may pull out of the world’s biggest Internet market by users after reporting it had been hit by a “sophisticated” cyber-attack on its network that resulted in theft of its intellectual property.
The sources, who are familiar with the situation, told Reuters that the attack, which targeted people who have access to specific parts of Google networks, may have been facilitated by people working in Google China’s office.
“We’re not commenting on rumour and speculation. This is an ongoing investigation, and we simply cannot comment on the details,” a Google spokeswoman said.
Security analysts told Reuters the malicious software (malware) used in the Google attack was a modification of a trojan called Hydraq. A trojan is malware that, once inside a computer, allows someone unauthorised access. The sophistication in the attack was in knowing whom to attack, not the malware itself, the analysts said.
Local media, citing unnamed sources, reported that some Google China employees were denied access to internal networks after Jan. 13, while some staff were put on leave and others transferred to different offices in Google’s Asia Pacific operations. Google said it would not comment on its business operations.
TALKS SOON
Google, which has denied rumours that it has already decided to shut down its China offices, said on Monday it contacted the Chinese government last week after the announcement.
“We are going to have talks with them in the coming few days,” Google said.
Google is also still in the process of scanning its internal networks since the cyber-attack in mid-December.
China has tried to play down Google’s threat to leave, saying there are many ways to resolve the issue, but insisting all foreign companies, Google included, must abide by Chinese laws.
Washington said it was issuing a diplomatic note to China formally requesting an explanation for the attacks.
The Google issue risks becoming another irritant in China’s relationship with the United States. Ties are already strained by arguments over the yuan currency’s exchange rate, which U.S. critics say is unfairly low, trade protectionism and U.S. arms sales to Taiwan.
Washington has long been worried about Beijing’s cyber-spying programme. A congressional advisory panel said in November the Chinese government appeared increasingly to be penetrating U.S. computers to gather useful data for its military.
India must loosen foreign investment rules in insurance, banking and retail to create more jobs and accelerate economic growth, the Organization for Economic Cooperation and Development said.
The South Asian nation’s policies to attract overseas investors remain “restrictive in comparison with a majority of OECD countries,” the Paris-based organization said in a report titled “OECD Investment Policy Reviews: India.”
India limits New York Life Insurance Co. and other foreign insurers to a 26 percent stake in local companies and bars retailers including Wal-Mart Stores Inc. from opening outlets in the world’s second-most populous country. The OECD called for an improvement in the “investment environment” in India, which the World Bank places 133rd among 183 countries in a ranking based on the ease of doing business.
Indian Prime Minister Manmohan Singh told investors in New Delhi last month that the country had received foreign direct investment of $121 billion since 2001 and that it isn’t a “large number given the scale of our economy.” The flows were less than a quarter of the $566 billion that China attracted during the period.
“India may be able to better achieve its objectives through non-discriminatory policies rather than sectoral restrictions on foreign investment,” OECD Secretary-General Angel Gurria said in the report.
A plan to raise the foreign-direct-investment ceiling in insurance to 49 percent has been stuck in parliament for more than three years and is currently being debated by a group of all political parties.
Bank Access
In retail, local laws are aimed at protecting small shops in Asia’s third-largest economy. India permits overseas chains such as Wal-Mart to operate as wholesalers and sell groceries and other goods to businesses such as supermarkets, department stores and restaurants payday loans. They are barred them from opening stores or buying stakes in supermarket chains.
In banking, India’s central bank postponed in April a plan to review granting greater access for foreign lenders into the economy. The Reserve Bank of India regulates the entry of foreign banks and even limits expansion of their branches to 12 a year, the OECD said.
“Growth could be accelerated by the enhanced productivity from increased foreign investment,” the report said. “In banking, insurance and especially retail distribution, the influx of FDI could help raise incomes in the agriculture sector while increasing the choice and lowering living costs.”
Economic Growth
The OECD said that while growth and investment in India has been “impressive” since 1991, when Prime Minister Singh as finance minister opened the nation’s economy to foreign investors, income inequalities among states have increased.
India’s economic growth has averaged 8.5 percent each year since 2004 after expanding at a 6 percent pace during the 1990s. India’s investment rate has more than doubled to 35 percent of gross domestic product since 1991.
The OECD called upon poorer states in India to cut bureaucracy to attract more investment and spur growth.
“While the central government has reduced the number of approvals needed for new investment, there remains a need to streamline administrative procedures at the state level,” according to the report.
The OECD also called on India to improve the judiciary, whose capacity to handle cases such as those related to intellectual property rights “in a timely manner remains insufficient.”
Drugmakers would take a bigger hit under healthcare legislation unveiled in the U.S. House of Representatives on Thursday, while insurers would face mandatory rebates and the loss of their antitrust exemption.
Despite a carefully crafted deal with the White House and senators earlier this year, House lawmakers want pharmaceutical companies to pay more through rebates for Medicare patients also enrolled in the government’s Medicaid program for the poor.
And while they also want to close the gap in drug coverage for elderly and disabled Medicare patients — a move that could get more people to take their medications — House leaders would require the nation’s health secretary to negotiate lower drug prices under the program.
Insurers, already expected to take the biggest whack under any health reform measure, saw most of their worries realized with the House bill eliminating the industry’s exemption to antitrust laws and targeting their profits.
The measure forces insurance companies to give customers rebates if less than 85 percent of enrollees’ fees is spent on actual health care.
The much-anticipated public option also could give insurers stiff competition by keeping prices down with reimbursements potentially as low as Medicare rates as well as requiring providers to opt out against accepting patients with the public plan coverage. The bill also allows for a cooperative insurance exchange for consumers to compare plans.
While the drug and insurance sectors would take a hit, most healthcare companies also would see their income dented, especially when it comes to government reimbursement.
“Pretty much for every industry, provisions are worse in the House bill than in the Senate,” said Ipsita Smolinski, an analyst for investors at Capitol Street.
At the same time, the bill would increase the number of Americans with insurance by 36 million, the Congressional Budget Office estimated payday advance. That would bring new customers for drugmakers, insurers and other providers of health services and products.
The broader S&P Health Care Sector index .GSPA closed up nearly 1 percent, trailing the 2.25 percent increase for the overall market. Health insurer stocks ended sharply higher on Thursday, helped in part by Aetna Inc’s encouraging third-quarter earnings report.
Drugmakers and insurers are expected to fight back against the provisions, especially as Senate leaders prepare to release their own bill as soon as next week.
“Unfortunately, some people are unrealistic in the expectations of what our industry can contribute to healthcare reform without triggering catastrophic job losses and driving critically important (research and development) overseas,” said Ken Johnson, a spokesman for the Pharmaceutical Research and Manufacturers of America.
America’s Health Insurance Plans President Karen Ignagni said that the government public insurance option “would cause millions of people to lose their current coverage” while other consumers could see benefit cuts or higher costs.
For hospitals, the picture appeared somewhat murkier. A greater number of insured patients would help offset losses from mandatory care hospitals provide in emergency rooms, but they would also face lower government reimbursement and possible higher device costs.
Clinical laboratories, hospice providers and other sectors will see their reimbursements cut based on a rate that the American Clinical Laboratory Association said could be between about 1.1 and 1.4 percent annually.
The Group of 20 rich and developing economies, fresh from a triumphant show of unity at Pittsburgh, faces months of deal-making and communication to markets that will test its credibility as the premier global forum for economic cooperation.
“It worked,” G20 leaders declared on Friday of their response to the global financial crisis. “Our forceful response helped stop the dangerous, sharp decline in global activity and stabilize financial markets,” they said in the final summit communique.
The summit host, U.S. President Barack Obama, called the gathering a success for a commitment to global economic growth that is “balanced and sustained” and cited in particular a deal to phase out fossil fuel subsidies.
“I am proud that the G20 nations agreed to phase out $300 billion worth of fossil fuel subsidies. This will increase our energy security, reduce greenhouse gas emissions, combat the threat of climate change, and help create the new jobs and industries of the future,” he said on Saturday in his weekly radio and Web address.
The leaders agreed that their summits would supplant those of the Group of Seven nations as the high table of global policy making, promising to give rising powers such as China more say in rebuilding and guiding the world economy.
While G7 states were right to accept the inevitable dilution of global economic power caused by the rapid industrialization of poorer countries, analysts said the size and diversity of the group would probably complicate policy coordination.
“There are a lot of cooks in the kitchen … I would wait until we declare victory,” said Simon Johnson, a former chief economist of the International Monetary Fund cash advance no faxing. “They have to prove their value and legitimacy.”
Challenges to the group’s new mantle lie everywhere, from inertia on climate change to skepticism in global financial markets.
G20 nations will remain in the spotlight at the IMF meetings in Istanbul next month, a G20 finance ministers meeting in Scotland in November and the U.N. climate change talks in December.
DISAGREEMENT
Markets were unlikely to react to the support in Pittsburgh for a U.S.-led push to reshape the global economy by smoothing out huge surpluses in exporting powerhouses such as China and large deficits in big importers such as the United States.
“Any indication of unity will move the dollar,” Christopher Low, chief economist, FTN Financial in New York. “But disagreement will rule and that should result in no market reaction.”
G20 leaders agreed to work together to assess how domestic policies mesh and to evaluate whether they were “collectively consistent with more sustainable and balanced growth.”
Countries with sustained, significant surpluses — a description that fits China — pledged to strengthen domestic sources of growth, according to the communique. By the same token, countries with big deficits — such as the United States — pledged to support private savings.
The leaders agreed to shift some voting rights at the IMF to under-represented countries such as China from rich ones, another sign of the changing balance of economic power accelerated by the financial crisis.
Signaling an attempt to move forward on stalled U.S. union legislation, AFL-CIO president John Sweeney would back speedy votes by workers on whether to join a union rather than the much-attacked “card check” provision, The New York Times reported on Saturday.
Sweeney, head of the largest U.S. labor federation, told the newspaper he would accept a fast election campaign because it would help stem management interference during union organizing drives.
The card check legislation, backed by U.S. President Barack Obama, would let workers decide whether to unionize by signing a petition or holding a secret-ballot election. Employers can now require a secret ballot.
Any move away from card check would mark a victory for the business community, the Times said.
Sweeney said he “could live with” fast or snap elections “as long as there is a fair process that protects workers against anti-union intimidation by employers and eliminates the threats to workers,” the paper reported.
Critics of the legislation say unions could bully workers into signing a petition and that a secret ballot is a tenet of democracy. Backers of the bill argue companies have undermined elections with threats against workers, anti-union campaigns and lengthy delays auto loans for people with bad credit.
Richard Trumka, secretary treasurer of AFL-CIO and the likely successor to Sweeney as president, told Reuters in July he was ready to push on a card check law, which has faced stiff opposition from Republican lawmakers.
The Employee Free Choice Act has been bogged down in the Senate, opposed by a vigorous lobbying effort, and compromises had been expected.
Some key Democratic senators have told labor leaders they could not muster the 60 votes needed to assure passage of a bill that included card check, but the union officials have held fast to the idea, at least publicly, the Times said.
“If modifying that in some way or another is going to bring some more votes for the bill, I think that’s worth it,” the paper quoted Sweeney as saying.
Under Sweeney’s idea, the Times said, a secret ballot would be held within a week or so of a significant number of workers petitioning for a union — far shorter than the current period when campaigns can last for months.
(Writing by Chris Michaud; Editing by John O’Callaghan)
The Federal Reserve said Wednesday it appears that the U.S. economy has halted the longest period of decline since the Great Depression, although it cautioned that economic activity is likely to remain weak in the near term.
The central bank left its key overnight interest rate at a 0% to 0.25% range, as expected. Its statement at the conclusion of its two-day meeting said "economic activity is leveling out."
That is the Fed’s most bullish assessment of the economy in more than a year, and suggests that a recovery may have started.
It said it still expects "inflation will remain subdued for some time" and said that it expects rates to remain near zero percent "for an extended period."
The Fed cut interest rates to the record low range at its December meeting in an effort to spur the struggling U.S. economy at that time.
It also pumped about $1 trillion of cash into the economy during the last year through a number of extraordinary programs, including the purchase of Treasurys and mortgage-backed securities, as well as new programs to get banks and other lenders to extend credit to consumers.
The Fed statement said it believes those actions, along with the stimulus packages passed by Congress "will contribute to a gradual resumption of sustainable economic growth."
Change of tone: Economists said the Fed’s statement represented a significant change from its recent pronouncements on the state of the economy.
"It think we are really seeing a paradigm shift in thinking at the central bank," Sung Won Sohn, an economics professor at Cal State University, Channel Islands. "They are no longer concerned about a severe economic contraction as they were last fall. They now want to nourish the budding economic recovery."
But Sohn and Rich Yamarone, director of economic research at Argus Research, said the Fed is unlikely to raise interest rates anytime in the foreseeable future, even if it starts to pull back on some of the other programs it used to pump money into the economy.
"Many of the Fed’s emergency initiatives were rescue measures enacted for a sinking economy," said Yamarone payday advance lenders. "Now that the economic recession has seemingly stabilized, the Fed can afford to pull in a few of its life rafts. But it’s a safe bet the Fed finds comfort in keeping a few life preservers in the water until the coast is clear."
Robert Brusca of FAO Economics said that despite the change in tone in the statement, it’s premature to say that the Fed sees the economy as definitely entering into a period of recovery.
"The Fed is getting less worried, but is not at a point to depend on a recovery yet or to bet on how strong it will become," he said.
The Fed said Wednesday it expects to complete the previously announced purchases of $300 billion of Treasurys by October, and that to have "a smooth transition in markets" it will slow those purchases between now and then.
In recent weeks, there has been a growing consensus among top economists that the U.S. economy has turned around or is close to doing so. A number of economic readings, including the government’s employment report and the gross domestic product, the broadest measure of the nation’s economic activity, have improved — although they still show job losses and a modest drop in GDP.
The Fed has long been on record as saying it expected economic growth to return in the second half of 2009, although it expected a modest recovery at that time. The statement Wednesday is the most explicit declaration yet that recession that started in December 2007 has come to an end.
U.S. stocks sustained earlier gains Wednesday afternoon after the Fed’s statement. Bond prices, which had been lower before the announcement, slipped further. Treasury rates, which move in the opposite directions, rose as the Fed detailed its plans on purchases.
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Less than a year after it nearly brought down the financial system with a misguided derivatives bet, AIG is everyone’s favorite lottery ticket.
Shares in the troubled taxpayer-owned insurer have nearly doubled in the days leading up to Friday morning’s scheduled release of second-quarter earnings. It is a flurry of speculative enthusiasm that boggles the mind.
Yes, the New York-based company is under new leadership, with former MetLife (MET, Fortune 500) chief Robert Benmosche due to take the reins from Ed Liddy on Monday. AIG (AIG, Fortune 500) has also made some modest progress in selling assets, putting it in position to start repaying some of its government loans.
There is even talk the insurer may have stopped bleeding this quarter: The two analysts who cover AIG, which was bailed out by the government last fall after a huge derivatives bet blew up, expect it to make $1.67 a share — its first profit since the end of 2007.
Even so, given the scope of AIG’s problems — it reported a $99 billion loss last year and survived last fall’s market meltdown thanks only to $180 billion in federal support — it’s hard to square the rally with the company’s grim outlook.
"The speculators have jumped in on this one, like all the other dregs of the state," said Joe Saluzzi of institutional broker Themis Trading. "These stocks have become trading instruments, and they do what they do."
One factor that could be at work is a so-called short squeeze, in which a rising stock price forces those who have bet the shares would fall to buy stock to cover their positions.
Short sellers borrow stock and sell it with the hopes of buying it back later at a lower price. The cost of borrowing AIG shares for the purpose of selling them short has doubled this summer, said John Tabacco of LocateStock.com, a firm that provides financial data to hedge funds and other traders.
"This is truly a phenomenon," Tabacco said. "I don’t know what is going on, but it appears to be the new game in town."
Of course, AIG wasn’t the only deeply depressed financial stock to stage a stunning midweek rally. While AIG jumped 63% Wednesday, its government-controlled peers Fannie Mae (FNM, Fortune 500) and Freddie Mac (FRE, Fortune 500) — which were taken over last September as mortgage losses ate through their thin capital bases — rose 30% and 31%.
The state-sponsored financial losers weren’t the only big winners. CIT (CIT, Fortune 500), the small business lender that was recently denied a federal lifeline, jumped 38% free 3-in-1 credit report. Mortgage insurer Radian (RDN) soared 83% Wednesday after the firm posted a surprise profit.
The good news was that Radian paid out much less in insurance claims on the mortgages it insures than it had forecast. That could be good news for other insurers, such as AIG.
But analysts at CreditSights said they see it as "highly unlikely" that Radian will make money either this year or next.
Similarly, while AIG could swing to a profit in the second quarter, it’s clear that the company remains deeply troubled. The firm did a 1-for-20 reverse split at the end of June in a bid to avoid being delisted by the New York Stock Exchange. In a reverse split, a company reduces the number of shares outstanding in order to boost its stock price, but the value of the company does not change.
"No one does a reverse split unless they’re in real trouble," Saluzzi said.
And while taxpayers are getting a trickle of money back via dividends from most of the banks that took federal funds in the Troubled Asset Relief Program, they aren’t getting anything for the billions they have lent AIG.
The company owes Treasury a 10% annual dividend on the $41.6 billion in series E preferred shares it sold the government in its latest restructuring in April. That means taxpayers are entitled to a check for $1.04 billion every quarter.
But unlike most of the preferred shares issued under TARP, the AIG series E shares are "noncumulative" — meaning that the company can skip dividend payments without the obligation to make up the difference later.
AIG was due to pay its latest dividend Aug. 3, according to Treasury data at FinancialStability.gov. But AIG didn’t declare the dividend, an AIG spokeswoman said.
On the bright side, should AIG miss three more dividends, the government will have the right to nominate two directors to its board — further consolidating its control of an entity of which it already owns nearly 80%.
"We wish we knew what was going on with this stock," said Saluzzi. "We just hope long-term investors don’t get swept up in this."
Talkback: Do you think AIG’s stock is worth buying? Share your comments below.
The government recently refused to bailout one troubled commercial lender. But another is telling regulators that it doesn’t want Washington’s help anymore.
GE Capital, the massive financing arm of General Electric, announced Wednesday morning that it had received approval from the Federal Deposit Insurance Corp. (FDIC) to exit a program that had allowed GE Capital to issue debt at super-low interest rates backed by the government.
This comes on the heels of the government’s refusal to come to the aid of GE Capital competitor CIT Group (CIT, Fortune 500). The good news: CIT bondholders — in other words, the private sector — managed to put together a rescue package.
So is this something to cheer, another sign that the financial markets are finally starting to function as they should? It could be.
"Obviously GE feels that they have strong enough liquidity that they don’t need additional backing to raise capital," said Dan Genter, chief executive officer of RNC Genter Capital Management, a Los Angeles-based money management firm that owns GE stock.
Shares of GE (GE, Fortune 500) were up about 2% Wednesday afternoon.
GE has been the worst-performing stock in the Dow this year largely because of GE Capital’s struggles. GE lost its cherished triple A credit rating earlier this year and also slashed its dividend to preserve cash.
Last week, the company announced that profits in the GE Capital division plunged 80% in the second quarter. That helped lead to a 47% drop in GE’s total profits. GE CEO Jeffrey Immelt maintained though that GE Capital would remain profitable in 2009.
So can GE Capital really get by without assistance from regulators?
Talkback: GE has been the worst performer in the Dow this year. Would you buy it now or is it going to head lower? Leave your comments at the bottom of this story.
GE Capital has been one of the more active participants in the the FDIC’s Temporary Liquidity Guarantee Program, more commonly referred to by its oh-so mellifluous acronym of TLGP.
Since the TLGP was launched in December, financial institutions have issued about $330.5 billion outstanding in debt, according to the FDIC.
The FDIC does not break down issuance by specific companies. But GE spokeswoman Anne Eisele said GE Capital had issued $51 billion in government-backed long-term debt since the program began.
In a statement Wednesday, GE Treasurer Kathryn Cassidy said that GE Capital’s decision to bid TLGP adieu "affirms the strength of GE Capital’s funding and liquidity position, including reduced reliance on government funding programs and our ability to access non-guaranteed debt markets."
Cassidy added that the move "is a positive step in returning the broader capital markets to normal functioning and is in line with GE Capital’s 2009 and 2010 debt issuance and funding cost plans."
FDIC spokesman Andrew Gray also said that GE’s announcement should be viewed as a signal that the credit markets are slowly nursing their way back to health affordable life insurance.
"It’s a positive sign for the private markets that this type of debt can be issued without government backing," he said.
That may be true, though it’s important to note that the TLGP program is set to expire on Oct. 31, so GE Capital would have no choice but to eventually fend for itself anyway (assuming the government didn’t extend it, as it has once already).
One analyst said the news from GE is less about the credit markets returning to normal and more about GE trying to win favor with the FDIC and other regulators, which are pressuring the company to either convert into a bank or cut ties with the GE Capital unit as part of a broader reform plan of the financial services industry.
"When you exit a program like this there should be no band playing. GE decided to announce it to turn this into a sign that everything’s just cool," said Nicholas Heymann, an analyst with Sterne, Agee & Leach.
Heymann points out that if GE is forced to become a bank holding company, it would be costly because it would face much higher capital requirements and would need to buy time to boost its reserves.
Eisele disputed Heymann’s claims though. "There’s absolutely no connection. This has nothing to do with the Obama administration’s regulatory reform plan. It’s totally unrelated," she said.
GE Capital is holding an investor meeting next Tuesday to specifically discuss what’s next for the unit. But regardless of what GE ultimately decides to do, there’s no denying that these are very interesting times for GE Capital.
On the one hand, if the credit markets really are improving, then GE has a chance to really take advantage of CIT’s problems. So it will probably seek to remain an active player in the commercial lending market, particularly to retailers, a segment that has historically been CIT’s bread-and-butter.
Along those lines, GE Capital also announced Wednesday that it was kicking in $290 million of a new $1 billion line of credit for drugstore chain Rite Aid (RAD, Fortune 500).
But at the same time, investors are eager to see the unit pull back on some of its more risky lending practices.
The big challenge for GE Capital is going to be finding a way to keep growing without getting greedy. That will be a delicate balance.
"The ability for GE Capital to capture market share now is something for them to look at as an opportunity," said Genter. "GE Capital has had its share of problems but I think they can take on new liabilities while putting out fires on the home front. They just need to look for lower-risk paths to follow."
Wall Street erased most of its losses by the close Wednesday, as investors set aside concerns about the economy to gear up for the quarterly reporting period, which got underway after the closing bell with Alcoa.
The Dow Jones industrial average (INDU) gained 15 points, or 0.2%. The S&P 500 (SPX) index lost 1 point, or 0.2%. The Nasdaq (COMP) ended just above unchanged.
Stocks slipped through most of Wednesday as investors continued to worry about the economy and the quarterly reporting period in the aftermath of a big run up. But after touching fresh multi-month lows in the afternoon, stocks bounced back.
After the close, Dow component Alcoa (AA, Fortune 500) reported a quarterly loss of 26 cents per share as the global recession ate into the price and demand for its precious metals. But the decline was narrower than the loss of 38 cents per share analysts expected, according to Thomson Reuters. Alcoa earned 66 cents a year ago.
Alcoa shares gained 5% in after-hours trading.
But most quarterly reports aren’t due until later this month and the results are expected to be fairly grim. Profits for S&P 500 companies are expected to have fallen 36% from a year ago, according to the latest Thomson Reuters estimates.
"Expectations are reasonably low, like they were in the first quarter, so it won’t be hard for companies to meet or exceed forecasts," said Linda Duessel, equity market strategist at Federated Investors.
"But the market is looking for evidence in the forecasts that there will be a recovery in the second half," she said. "If any major company says something really negative, we’re not going to be prepared."
Stocks have drifted lower since mid-June on worries the economy won’t stabilize as quickly as some had hoped. Those declines followed a three-month stock market rally that propelled the S&P 500 off of 12-year lows by about 40%.
"The market is basically going through what it normally does after a big advance off the bottom," said J. Stephen Lauck, president and CEO at Ashfield Capital Partners. "It’s going to be bumpy as Wall Street sorts out what’s going to happen in the next leg of this economic cycle."
The recent selloff has reflected worries about the economy, punctuated by the weaker-than-expected June jobs report, released last week. Now investors are looking to corporations to provide guidance about their profits and the economic outlook.
Lauck said that the market is nervous about the start of the earnings reporting period and what companies might say about the forecast for the economy and profits bad credit car loans.
Google: Tech behemoth Google (GOOG, Fortune 500) said late Tuesday that it will challenge Microsoft (MSFT, Fortune 500)’s dominant Windows by launching a rival operating system called Chrome OS. The system will be available in the second half of 2010.
On the move: Google shares gained, but other big techs slipped including chipmakers Intel (INTC, Fortune 500), Advanced Micro Devices (AMD, Fortune 500) and Applied Materials (AMAT, Fortune 500).
Bank of America (BAC, Fortune 500), Morgan Stanley (MS, Fortune 500) and Goldman Sachs (GS, Fortune 500) were among the big bank decliners.
Among Dow movers, gains in Boeing (BA, Fortune 500), Johnson & Johnson (JNJ, Fortune 500) and Wal-Mart Stores (WMT, Fortune 500) helped offset weakness in bank, tech and telecom stocks.
Market breath was negative. On the New York Stock Exchange, losers beat winners nearly two to one on volume of 1.44 billion shares. On the Nasdaq, decliners beat advancers by two to one on volume of almost 2.52 billion shares.
Economy: May consumer credit fell $3.22 billion versus a revised decline of $16.7 billion in the previous month. Economists surveyed by Briefing.com thought it would fall by $8.8 billion.
The International Monetary Fund forecast global GDP would shrink by 1.4% in 2009, versus its earlier forecast of 1.3%. However, the IMF also lifted its forecast for 2010 growth to 2.5% from 1.9% previously.
G8: The leaders of the world’s eight foremost industrialized nations met in L’Aquila, Italy Wednesday to discuss the global economy, climate change and world security issues. In addition to President Obama, the leaders of Japan, Britain, France, Italy, Germany, Canada and Russia are also due to speak.
Bonds: Treasury prices rallied, lowering the yield on the benchmark 10-year note to 3.31% from 3.45% late Tuesday. Treasury prices and yields move in opposite directions.
Other markets: In global trade, Asian and European markets ended lower.
Energy prices slipped, with U.S. light crude oil for August delivery falling $2.79 to settle at $60.14 a barrel on the New York Mercantile Exchange.
In currency trading, the dollar gained versus the euro and fell versus the yen.
COMEX gold for August delivery fell $19.80 to settle at $909.30 an ounce.
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