Dow struggles higher after a dismal month


Economic reports suggest the U.S. recovery rate is sluggish

By Alexander Twin
CNN/Money Staff Writer

NEW YORK (CNN/Money) -- Stocks closed out a brutal month in mixed trade, with blue chips shrugging off a pair of worse-than-expected economic reports by the close, while the Nasdaq lost more ground on profit warnings in the chip and retail sectors.

July was the worst month ever for the Dow Jones industrial average and the first time it has fallen four months in a row in 20 years.

It was the worst month since World War II for the Standard & Poor's 500 index.

The Nasdaq composite lost 15.93, or 1.18 percent, to close at 1,328.26 Wednesday. For the month of July, it lost more than 135 points, or 9.0 percent.

The Dow Jones industrial average added 56.56, or 0.65 percent, to close at 8,736.59; it was down more than 141 points earlier in the session. For the month, it lost 507 points, or 5.4 percent.

The Standard & Poor's 500 index added 8.84, or 0.98 percent, to end the day at 911.62. But for the month, it is down 78 points, or just under 8 percent.

"It's been an horrendous month, but it's nice to end it the way we have in this last week and today [Wednesday] is an indication of that," Warren Meyers, a New York Stock Exchange specialist with Walter J. Dowd, told CNNfn's Street Sweep.

After the close of trade, online retailer Priceline.com (PCLN: up $0.01 to $1.85) reported a profit of 3 cents a share for its June quarter, in line with estimates and higher than a year earlier.

The company also said that its third-quarter earnings per share might miss estimates by a penny and that it will buy back up to $40 million of common stock.

Graphic-design software maker Adobe Systems (ADBE: down $0.98 to $23.96) warned that its third-quarter results will miss estimates due to weak demand in Europe and Asia.

Slower pace

Two Dow components: No. 1 oil company Exxon Mobil (XOM: up $1.09 to $36.76) and media company Walt Disney (DIS: up $0.29 to $17.73) are expected to report results Thursday.

In addition, the Institute of Supply Management's July survey of purchasing managers, a closely watched manufacturing indicator, and reports on construction spending and auto and truck sales are among the economic data due.

A warning from graphics chipmaker nVidia and a few specialty retailers contributed to selling on the Nasdaq Wednesday.

A late-day announcement from Johnson & Johnson helped the Dow overcome broad losses earlier in the session. Among the bigger decliners: IBM, following a multibillion-dollar buyout of PricewaterhouseCoopers' consulting unit.

The economy grew at a slower pace than expected in the second quarter, the government said, confirming a sluggish economic recovery following the first recession in a decade.

The initial reading of gross domestic product annual growth was 1.1 percent, down from a revised 5 percent in the first quarter. Economists surveyed by Briefing.com were expecting a reading of 2.3 percent growth.

Modest growth

In addition, the National Association of Purchasing Management-Chicago's closely watched survey of regional manufacturing activity declined to a reading of 51.5 in July from a revised 58.2 in June. Economists were expecting a reading of 56.5.

"The belief has been that if the economy is recovering and corporate profits are improving, equity markets will fall in line eventually," said John Davidson, president of PartnersRe Asset Management.

"I believe this will still prove to be true, but there's fear that if the economic recovery is slowing, stocks may not catch up as soon."

In other economic news, the Fed's "beige book" report on economic conditions, released mid-afternoon, showed modest growth across a variety of sectors and regions, amid mixed retail sales, an improving manufacturing sector and a relatively stable labor market.

On an up note, Lehman Brothers raised its rating on American Express to "strong buy" from "market perform," citing confidence in management's ability to deliver earnings in a tougher revenue climate and a valuation level that should begin to increase over the next year.

Energy companies on the New York Stock Exchange rocketed higher as well, with Dynegy (DYN: up $0.66 to $2.40) adding more than 45 percent.