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Stocks waver as investor weigh signs of future economic growth with ongoing debt talks
Stocks wavered in midday trading Friday as investors balanced signs of future growth in the U.S. economy with a looming deadline for Congress to reach a deal in debt talks.
The Conference Board's index of leading economic indicators rose more than Wall Street analysts were expecting, a sign that the economy may pick up in the coming months. But many investors remained cautious as a key Congressional committee remained deadlocked on ways to cut the U.S. deficit.
A bipartisan panel must agree on making at least $1.2 trillion in deficit cuts by Thanksgiving. If the committee fails, automatic spending cuts will take effect beginning in 2013. Economists worry that a deadlocked Congress will erode business confidence and slow the already-fragile economy.
The Dow Jones industrial average was down 3 points, or less than 0.1 percent, to 11,768 as of 12:10 p.m. Eastern.
The Standard and Poor's 500 index fell 4, or 0.3 percent, to 1,213. The Nasdaq composite slid 18, or 0.7 percent, to 2,569.
The Dow had been up as much as 84 points in early trading after borrowing costs fell for Italy and Spain. That is a signal that bond investors are less fearful of a default by those countries. Spain and Italy have had to pay high interest rates because bondholders fear that that they will default. Holders of Greek bonds were all but forced to take steep losses on that nation's debt.
Europe's debt problems are far from settled, however. Comments by German and British leaders Friday suggested that they have divergent views on how to address the debt crisis. German Chancellor Angela Merkel cautioned against expecting too much from the region's leaders. British Prime Minister David Cameron called for "decisive action" to shore up the struggling currency union.
Positive economic reports this week ' including a drop in unemployment applications and an increase in industrial production ' barely budged markets because a European meltdown would easily drag down the U.S. economy, said Kim Caughey Forrest, equity research analyst at Fort Pitt Capital Group.
"Our economy might be improving, but the fixation is on what's going to happen with the world banking system if defaults happen in Europe," she said. She said investors are reluctant to take big positions because no one knows how Europe's problems will be resolved, or how U.S. companies' future profits will be affected.
In corporate news, ketchup maker H.J. Heinz Co. fell 2.5 percent after it said its second-quarter net income fell almost 6 percent, although its adjusted results narrowly beat expectations. Sales in emerging markets remained strong, and price hikes in other areas helped offset lower volumes.
Retailer Gap Inc. slid 3.5 percent after its third quarter revenue came in slightly below Wall Street's forecasts. The company said materials costs are continuing to eat into profit margins. Salesforce.com plunged 9 percent after its quarterly results came in below estimates.