Stocks tumble on weak economic data

By Andrea Tse

Stocks tumbled Thursday as markets digested weak economic reports on U.S. employment, home sales and manufacturing, as well as disappointing data out of China and the eurozone.

The Dow Jones Industrial Average ($INDU) was down by 156 points at 12,668. The S&P 500 ($INX) was down by 19 points at 1,337. The Nasdaq Composite ($COMPX) was down 45 points at 2,885.

The Labor Department reported that weekly initial jobless claims for the week ended June 16 fell to 387,000 from an upwardly revised 389,000. A level below 350,000 is associated with a consistent improvement in the unemployment rate. Economists surveyed by Briefing.com were expecting jobless claims of 380,000. The four-week moving average was 386,250, an increase of 3,500 from the previous week's average of 382,750.

Continuing claims for the week ended June 9 were 3,299,000, unchanged from the preceding week's revised level. Economists, on average, had expected a level of 3,250,000. 

"After a fairly substantial period of constantly lower jobless claims, a new, more unwelcome trend higher has taken hold," BTIG economists said. "This of course has ramifications for the broader monthly jobs report but clearly, given the current trend, a meaningful pickup in monthly job additions looks unlikely."

Reuters reported that U.S. manufacturing in June grew at its slowest pace in 11 months and sector hiring slowed as international demand for U.S. products dropped, according to Markit's "flash" manufacturing Purchasing Managers Index. The reading fell to 52.9 from 54.0 in May, the lowest since July 2011.

The Conference Board's index of leading economic indicators rose 0.3% last month after falling 0.1% in April. The index is now at 95.8. The last time it was higher was June 2008, six months into the recession, AP reported. Before that, the index routinely topped 100.

Manufacturing in the Philadelphia region contracted for the second straight month, more evidence of a faltering economy, AP said. The Philadelphia Federal Reserve Bank index sank in June to minus 16.6 from minus 5.8 in May. A reading below zero indicates contraction.

Stocks finished mixed Wednesday as investors expressed mild disappointment with the Federal Reserve's much-anticipated decision to prolong its Operation Twist bond maturity extension program.

The central bank also lowered its expectations for U.S. gross domestic product growth in 2012, going to a range of 1.9% to 2.4% from 2.4% to 2.9%, and adjusted its projections for employment data to reflect slowing growth.

HSBC and Markit Economics said Thursday that the flash China manufacturing purchasing managers index came in at 48.1 in June, sinking to a seven-month low despite the recent interest rate cut by the Chinese government. Levels below 50 point to contraction.

Chinese manufacturers reported the sharpest decline in new export orders since March 2009.

"As such, we expect more decisive policy stimulus to reverse the growth slowdown," said Hongbin Qu, an economist at HSBC.

"Given the input from the HSBC report today, we forecast the official manufacturing PMI (due on 1 July) to drop to 49.5 in June from 50.4 in May, albeit owing in part to insufficient seasonal adjustments," said Yao Wei, an economist with Societe Generale. "Hence, more policy easing is in order. The People's Bank of China will probably act again in July, and, more importantly, new loans are expected to have risen close to CNY1tn in June."

The Hong Kong Hang Seng index settled down 1.3%, and the Nikkei in Japan closed up 0.82%. The FTSE in London was falling by 0.57%, and the DAX in Germany was down by 0.35%.

The Markit flash eurozone PMI composite output index came in at 46 in June, signaling that the private-sector economy shrank at a rate unchanged from May. With the exception of a marginal increase in January, the survey has recorded continual contraction since last September, with the rate of decline having gathered significant momentum in the second quarter.

Eurozone finance ministers were to discuss the continent's debt crisis and Greece in Luxembourg as Greece's new prime minister, Antonis Samaras, got ready to announce his cabinet after reaching a deal to form a coalition.

In the meantime, Greece has been placed under review by index provider MSCI for reclassification as an emerging market.

Spain met soaring borrowing costs at its auction of three-year debt as it prepares to publish information of its bank's capital needs, which will indicate how much financial support the country will require from Europe's rescue funds.

In corporate news, Rite Aid (RAD) reported first-quarter earnings Thursday that met analysts' expectations, but it lowered its sales guidance for the year. The drugstore chain reported a first-quarter loss of $30.7 million, or 3 cents a share, narrower than a year-earlier loss of $65.5 million, or 7 cents a share. Analysts were expecting a loss of 3 cents a share.

Rite Aid lowered its fiscal 2013 sales guidance to between $25.3 billion and $25.7 billion and said it expects same-store sales to decline between 0.5% and 1%. The company previously anticipated sales would be between $25.4 billion and $25.8 billion, with same-store sales between flat and an increase of 1.5%.

Red Hat (RHT) beat Wall Street's first-quarter profit expectations but posted weak billings and provided second-quarter guidance slightly below estimates.

Billings, defined as revenue plus the change in deferred revenue, came in at $310 million. Wall Street was expecting $319 million, according to Mizuho Securities analyst Abhey Lamba, who has a buy rating on the stock.

Bed Bath & Beyond (BBBY) gave a disappointing outlook Wednesday for its fiscal second quarter. The company expects earnings of 97 cents to $1.03 a share in the three months ending in August, below analysts' expectations for a profit of $1.08 a share.

Johnson & Johnson (JNJ) and the Justice Department are close to settling an investigation into the company's alleged improper promotion of the antipsychotic Risperdal, The Wall Street Journal reported, citing people familiar with the matter. The two sides are discussing a payment of at least $1.5 billion. The settlement would be one of the highest sums to date in a drug marketing case, the Journal said.

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