By Chris Dieterich
U.S. stocks edged higher Thursday as investors weighed a weak
report on economic growth against a strong one from the labor
market. The Dow Jones Industrial Average climbed 13 points, or
0.1%, to 16646 in midmorning trading. The S&P 500 advanced
three points, or 0.2%, to 1913 and the Nasdaq Composite Index added
12 points, or 0.3%, to 4237.
Major indexes traded in a narrow band in below-average volume
after the second estimate of first-quarter U.S. gross domestic
product showed the economy contracted at a seasonally adjusted 1%,
more than expected. Investors largely brushed off the weak report,
saying that it essentially told the market what is already known:
the economy was sluggish in the first three months of 2014, in
large part because of harsh winter weather.
Government economists had previously estimated that GDP, the
broadest measure of goods and services produced across the U.S.,
slowed to a 0.1% growth rate in the first quarter. The latest GDP
report does little to change the monetary-policy trajectory of the
Federal Reserve, which is reducing its bond purchases but remains
committed to keeping interest rates low for an extended period,
according to Brian Jacobsen, chief portfolio strategist at Wells
Fargo Funds Management, which manages about $242 billion.
"People are dismissing some of the weakness and expecting that
there is going to be strength in the future," Mr. Jacobsen said.
"It's not about what was; it's about what will happen. A lot of
what will happen will be driven by central bank policies."
Mr. Jacobsen has been recommending that investors buy more
shares of large U.S. companies, while reducing their holdings of
shares of smaller ones. The Russell 2000 index of small-cap stocks,
which recently had fallen more than 10% from its March high,
declined 0.1% on Thursday.
Anastasia Amoroso, global market strategist at J.P. Morgan
Funds, which oversees about $400 billion, was similarly unmoved by
the weak economic reading, which she likened to "looking in the
rearview mirror."
Rather, she is focused on more recent economic data that has
shown signs of improvement as stocks grind higher.
Jobless claims in the week ended May 24 fell more than expected
and remained near prerecession levels, according to the Labor
Department. The number of Americans filing claims for new jobless
benefits fell by 27,000 to a seasonally adjusted 300,000, versus an
expected to decline to 319,000.
"The trend is starting to reverse and, all in all, the data is
adding up to a stronger second quarter," Ms. Amoroso said.
A separate report on pending home sales for April rose 0.4%,
below expectations for a gain of 2%.
The yield on the 10-year Treasury note rose to 2.417% from
2.440% late Wednesday.
European markets were little changed, with the Stoxx Europe 600
flat. Traders positioned for next week's European Central Bank
monetary-policy decision. The central bank is widely anticipated to
announce new stimulus measures on June 5.
Asian markets were little changed. Japan's Nikkei Stock Average
rose 0.1%, while China's Shanghai Composite eased 0.5%.
Crude-oil futures added 0.4% to $103.10 a barrel, while gold
futures lost 0.4% to $1,254.80 a troy ounce.
The dollar fell against the euro and the yen.
In U.S. corporate news, Apple rose 1% after it confirmed late
Wednesday that it would buy headphone and audio software company
Beats Electronics and subscription streaming music service Beats
Music for a combined $3 billion.
Costco Wholesale added 0.5% after the bulk retailer said its
quarterly profit rose 3% from a year earlier, but missed
expectations.
Tyson Foods rose 5.9% after entering the bidding for Hillshire
Brands, which jumped 16%. Tyson offered to buy the maker of Jimmy
Dean sausage and Ball Park hot dogs for about $6.1 billion. The
fresh bid comes just two days after Pilgrim's Pride, down 1.5%,
revealed an unsolicited offer for Hillshire worth about $5.5
billion. Earlier this month, Hillshire moved forward with a $4.6
billion deal to acquire Pinnacle Foods , which declined 0.1%.
Abercrombie & Fitch rose 4% after the teen retailer's
quarterly loss widened, though not as much as expected.
Palo Alto Networks rose 7% after the cybersecurity company late
on Wednesday said its quarterly profit and revenue topped
estimates. The company also announced it had settled litigation
with Juniper Networks Inc. over a patent dispute.
Sanderson Farms added 3% after the meat processor's quarterly
profit more than doubled, topping estimates, in part because feed
costs declined from a year earlier.
Intercept Pharmaceuticals rose 3.8% after the U.S. Food and Drug
Administration granted fast-track status to its lead product
candidate for hard-to-treat cases of an autoimmune liver
disease.
Tilly's tumbled 17% after the teen retailer late Wednesday
posted weaker sales and higher expenses in its most recent
quarter.
Write to Chris Dieterich at chris.dieterich@wsj.com