Stocks rise slightly on earnings reports
NEW YORK — Stocks rose modestly Wednesday after companies reported higher earnings but gave mixed forecasts about how the fragile economy and rising costs will affect their growth.
Target Corp., Staples Inc. and Dell Inc. reported earnings for last quarter that were above analysts' forecasts. Companies in the Standard & Poor's 500 are on track to report higher profits for a ninth straight quarter. But economic growth is weak around the world, and some economists worry that a second recession may be coming. That could hurt companies' earnings in the future — and kept investors from buying with more enthusiasm Wednesday.
Dell's forecast added to investors' concerns: It cut its prediction for revenue growth this year. Target and Staples gave profit forecasts that were above Wall Street's expectations.
The Dow Jones industrial average rose 4.28 points to 11,410.21. The S&P 500 rose 1.13, or 0.1 percent, to 1,193.89. The Nasdaq composite fell 11.97, or 0.5 percent, to 2,511.48.
Seven of the 10 sectors that make up the S&P 500 rose. The biggest drops came from technology stocks, which fell 0.8 percent after Dell cut its forecast.
"There are a whole bunch of contradictory signals in the system now, and it's hard to tell which way to go," said Charlie Smith, chief investment officer of Fort Pitt Capital Group, which has just over $1 billion in assets under management.
Investors are still worried about Europe. Some countries have borrowed so much that they may not be able to repay their bonds, and economic growth there has slowed. Concerns about a possible default by a European country have dominated the market in recent weeks, along with worries about the slow U.S. economy.
Another concern Wednesday: Companies are contending with rising costs. Higher food prices helped push inflation at the wholesale level to 0.2 percent in July, according to a government report Wednesday. That compares with a 0.4 percent drop in June, but is still well below inflation levels earlier this year when violence in the Middle East forced oil prices higher. In February, wholesale prices rose 1.5 percent.
Economists say rising inflation reduces the chances that the Federal Reserve could announce another round of bond purchases to help the economy, a move called quantitative easing. The Fed just ended its second round of purchases, known as QE2, in June. "QE3 could be a hard sell" given higher inflation, Credit Suisse economists wrote in a report. They expect the government on Thursday to report that consumer prices rose 0.2 percent in July.
Preppy retailer Abercrombie & Fitch Co. fell 8.7 percent after its CEO warned of challenges ahead — including higher expenses. Cost "pressures will be greater in the second half of the year, and macroeconomic uncertainty has increased," Mike Jeffries said, after the company reported a 64 percent rise in profit last quarter.
Dell said late Tuesday its profit rose 63 percent last quarter on strong demand from businesses and government agencies. But it also cited "a more uncertain demand environment" when it cut its forecast for annual revenue growth to a range of 1 percent to 5 percent. That's down from an earlier growth forecast for 5 percent to 9 percent. Dell stock fell 10.1 percent Wednesday.
Other companies are more optimistic. Retailer Target said it expects to earn between $4.15 and $4.30 per share this year. Analysts expected $4.14. Target also said its earnings last quarter rose 3.7 percent on sales of grocery, beauty products and other items. Target stock rose 2.4 percent.
Office products retailer Staples raised its profit forecast for the year after saying strong international sales pushed earnings up 36 percent last quarter.
Deere also raised its forecast for full-year earnings. It now expects to earn $2.7 billion this fiscal year, up from a May forecast of $2.65 billion. The maker of tractors and other heavy equipment said its profit rose 15 percent last quarter on strong demand for farm equipment.
Stocks have been particularly volatile in August. Worries rose as the U.S. government said it may default on its debt unless it was allowed to borrow more. The government just beat the deadline to avoid a default, but the partisanship in the debate came at a cost — Standard & Poor's downgraded the U.S. credit rating on Aug. 5 by one notch to AA+ from the top AAA rating. That triggered one of Wall Street's wildest weeks: The Dow rose or fell by at least 400 points in each of the first four days of last week, the first time that has happened.
Markets appear to have calmed somewhat since then. Tuesday marked the first time since the Aug. 5 downgrade that the Dow rose or fell by less than 100 points. It fell 76 points on worries about Europe's ability to contain its debt problems.
Nearly three stocks rose Wednesday for every two that fell on the New York Stock Exchange. Consolidated trading volume was relatively light at 3.9 billion shares, the lowest in three weeks.