By Kate Gibson
NEW YORK(MARKETWATCH) -- U.S. stocks slid Thursday as jobless
claims fell but a measure of economic conditions in the
Philadelphia region and global shipper FedEx Corp.'s outlook both
disappointed.
"The jobless claims were better but the Philly Fed was much
worse, but we've come to expect that the data is going to be
mixed," said Noman Ali, senior portfolio manager at MFC Global
Investment Management.
"We've moved up 8% from the bottom in a space of less than two
months, so some correction is due," he added.
The Dow Jones Industrial Average (DJI) was off 14 points, or
0.1%, to 10,558.73, with 17 of its 30 components lower.
The Standard & Poor's 500-share index (SPX) fell 4.61
points, or 0.4%, to 1,120.46, with financials lagging the most
among its 10 industry groups.
The Nasdaq Composite (RIXF) declined 10.66 points, or 0.5%, to
2,290.65.
Nearly two stocks fell for each on the rise on the New York
Stock Exchange, where 404 million shares traded as of 1:30 p.m.
Eastern.
Shares of FedEx Corp. (FDX) fell nearly 4% after the shipping
giant reported its first-quarter profit more than doubled, but its
outlook for second-quarter and full 2010 earnings disappointed Wall
Street.
"The economy has weakened, so companies will be cautious in
terms of giving guidance, so that's going to be an overhang in
terms of stocks," said Ali.
That said, Ali has a bullish take on the equities market, at
least in looking at the next six to 12 months, given the relative
cheapness of equities, if one contrasts earnings yields on the
S&P 500 versus corporate bond yields.
There are many stable companies with stable cash flows and
dividend yields of 7% to 8%, yet at those same companies the
corporate bonds yield 3% to 4%.
The scenario has helped drive recent merger activity said Ali,
pointing to Intel Corp.'s (INTC) recent deal for McAffee Inc.
(MFE), Sanofi-Aventis SA's (SNY) attempt to purchase biotech firm
Genzyme Corp. (GENZ) and BHP Billiton Ltd.'s proposed takeover of
fertilizer giant Potash Corporation of Saskatchewan Inc. (POT)
.
Basically companies are saying, "I could borrow at 3% on the
bond market and pick up these companies yielding 7% to 8%," said
Ali.
"That is going to be a catalyst for equities to improve," Ali
said.
The Federal Reserve Bank of Philadelphia reported manufacturing
in the region contracted this month, defying expectations of a
rise.
Conversely, the government said new claims for jobless benefits
fell last week, with the more positive trend also unexpected.