U.S. stocks to start lower after housing disappoints
(Updates with economic data)
By Elizabeth Lazarowitz
NEW YORK, Aug 16 (Reuters) - Stocks are expected to sag at
Friday's open as investors react coolly to an optimistic
outlook from Dell Computer Corp. <DELL.O> and fresh economic
data dampen hopes the U.S. recovery is picking up steam.
Stock futures slipped further after the government reported
builders broke ground for new houses at a slower pace in July.
Housing starts fell for a second straight month, revealing
unexpected weakness in an area that has been one of the key
engines of U.S. growth.
"This was the one sector of the economy that had been
maintaining strength, and it is now showing weakness,
indicating a likelihood that the Fed will ease further," said
John Person, head financial analyst, Alaron Trading Corp,
adding that worries a sluggish economy will crimp profits could
keep equities under pressure.
The Federal Reserve kept interest rates steady earlier this
week, but said the economy is at risk of further weakness.
Inflation remained very tame on the consumer level,
according a separate government report, but investors were
already looking ahead to data on consumer sentiment, due later
in the morning, for further direction.
Stock futures were pointing to a weaker open. Standard &
Poor's 500 stock index futures were down 9.30 points at 921.20,
while Nasdaq 100 stock futures were off 15 points at 974.50.
Wall Street was digesting two straight days of gains after
being lifted on Thursday by better quarterly results from
retailers like Target Corp. <TGT.N>, and investors breathed
easier after hundreds of top executives pledged their firms'
financial statements were clean.
Stocks may have run out of steam after recent gains, and
growing skepticism about the strength of the U.S. economic
rebound could keep a cap on buying, said James Volk, director
of institutional trading at D.A. Davidson and Co.
Still, questions about corporate corruption had not
completely evaporated. Jack Grubman, the well-known Wall Street
analyst under fire for his dogged support of disgraced telecoms
giant WorldCom Inc. <WCOEQ.PK>, resigned on Thursday.
No. 2 personal computer maker Dell Computer offered bulls a
little hope after it reported it had pulled itself back into
profitability. It also raised expectations for revenue in the
current quarter, saying it will continue to grab market share
from competitors.
Investors' appetite for stocks was tempered, however, by a
mixed bag of corporate results.
MedImmune Inc. <MEDI.O> cut its earnings estimate for 2002
by 3 cents a share to reflect the cost of its acquisition on
Thursday of rights to a virus against which it hopes to develop
drugs.
Analog Devices Inc. <ADI.N>, whose microchips convert
analog and digital signals, said on Thursday its fiscal
third-quarter net income fell from a year ago, but revenue
stabilized amid a gradual industry recovery.
More bad news for the chip sector came after Morgan Stanley
cut its price target on sector heavyweight Intel Corp. <INTC.O>
to $27 from $38, according to market sources.
Battered U.S.-French media company Vivendi Universal
<EAUG.PA> <V.N> was likely to weigh on the market again after
negative reports from two investment banks sparked a fresh
slide in its shares in European trading.
On the economic calendar, the day's key event will be the
the University of Michigan's consumer sentiment survey, due at
9:45 a.m. (1345 GMT). The preliminary reading for August is
expected to show a slight gain to 88.3 from 88.1 in July,
according to a Reuters survey of economists.
A bigger-than-expected drop in July housing starts
heightened worries that the economic rebound has stalled. The
Commerce Department said starts fell 2.7 percent to a
seasonally adjusted 1.649 million annual rate in July, despite
low mortgage lending rates.
Economists polled by Reuters had projected a decline in
starts to a 1.669 million pace,
The consumer price index, the main U.S. inflation gauge,
rose just 0.1 percent last month after an identical advance in
June, the Labor Department said.
Excluding food and energy prices, which can vary widely
from month-to-month, the so-called core CPI was up 0.2 percent
in July, after a 0.1 percent rise in June.
Both overall and core CPI had been expected to show a gain
of 0.2 percent.
Among other stocks to watch were Kohl's Corp. <KSS.N> and
Gap Inc. <GPS.N>.
Kohl's reported a 44 percent rise in quarterly profit as
the value-priced retailer expanded, but Gap, the largest U.S.
specialty apparel retailer, posted a drop in earnings and said
its early August sales were below projections.
In overseas trading, European shares hit a holiday lull,
slipping in thin trade ahead of key U.S. economic data, with
telecoms boosting indexes slightly on positive comments from
Deutsche Telekom's <DTEGn.DE> chief. The pan-European FTSE
Eurotop 300 index <.FTEU3> was off 0.68 percent.
Tokyo stocks closed marginally lower on Friday after an
early spurt by NTT DoCoMo Inc <9437.T> and other blue-chips ran
out of steam in lazy summer holiday trade.
The Nikkei average <.N225> shed 0.08 percent or 7.44 points
to 9,788.13 after climbing as high as 9,883.65 in the morning
following a second day of gains on Wall Street.
At the end of Thursday's U.S. session, the Dow Jones index
<.DJI> was up 74.83 points, or 0.86 percent, at 8,818.14. That
was its highest close since July 9.
The broader Standard & Poor's 500 Index <.SPX> was up 10.63
points, or 1.16 percent, at 930.25. The technology-laced
Nasdaq Composite Index <.IXIC> was up 10.71 points, or 0.80
percent, at 1,345.01, after dropping as much as 1 percent.
(Additional reporting by Doris Frankel in Chicago)
(( -- Wall Street Desk, 646-223-6113 -- ))
REUTERS
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