NEW YORK – Stocks fell Thursday as lower-than-expected activity in the manufacturing sector, surprisingly soft June sales from General Motors and a number of brokerage downgrades stifled investor enthusiasm after two days of gains.
The Dow Jones industrial average (search) dropped 101.32 points, or 0.97 percent, to 10,334.16. The Standard & Poor's 500 Index (search) fell 11.86 points, or 1.04 percent, to 1,128.98. The technology-laced Nasdaq Composite Index (search) slid 32.24 points, or 1.57 percent, to 2,015.55.
The decline did not alarm analysts too much, as trading volume was lower ahead of the Independence Day weekend. After the market's muted reaction to a widely expected rise in interest rates on Wednesday, many investors were looking ahead to the government's monthly labor report, due Friday.
"I would not read too much into this weakness today, because there's a real lack of engagement overall," said Brian G. Belski, market strategist at Piper Jaffray. "I don't think there's any sense of urgency right now, today, ahead of the employment report, post the interest rate decision and in a holiday week, to put a lot of new money to work."
The Labor Department (search) reported that the number of people who signed up for jobless benefits rose slightly last week. Economists had forecast a decrease in claims.
Investors are now bracing for Friday's key non-farm payrolls data for June, worried about the potential for a lackluster report.
"You have investors perhaps a bit more fearful of what they might see in employment data tomorrow, with a slight uptick in the initial claims data and with some softening in the Chicago PMI two days ago," said Jack Caffrey, equity strategist at JP Morgan Private Bank.
A spike in oil prices added to investors' jitters amid fears it will cut into corporate profits. NYMEX (search) crude oil futures gained more than a dollar on a strong rally in heating oil futures. NYMEX August crude futures jumped $1.69, or 4.6 percent, to $38.74 a barrel.
The market's inability to build on the gains made in the previous session after the Fed's highly anticipated interest- rate hike discouraged some investors, said Peter Boockvar, equity strategist at Miller Tabak & Co.
"Yesterday, you had a little rally because 'The Fed's out of the way. Let's buy stocks,"' Boockvar said. "There was no follow-through today, and that disappointed people."
Trading is expected to fizzle on Friday as investors take off for the 3-day Independence Day weekend. U.S. financial markets are closed on Monday for the holiday.
Also Thursday, the Institute for Supply Management (search) said its manufacturing index declined to 61.1 in June, down from 62.8 in May. The new reading was somewhat lower than the 61.5 forecast by analysts. Still, the gauge has been above 50 since June of last year, indicating that manufacturing activity is still in an expansion.
On a Morgan Stanley internal call this morning, analyst Mark Edelstone said he believed that the midpoint of Intel's (INTC) third-quarter revenue outlook, which will be announced when the technology bellwether reports earnings on July 13, could be below analysts' estimates, according to people familiar with what was said on the call.
Intel sagged 58 cents, or 2 percent, to $27.02. Other chip-related shares followed suit, driving the Philadelphia Stock Exchange's semiconductor index down nearly 4 percent.
GM (GM) took a hit after it said its U.S. sales fell an unexpectedly sharp 15.6 percent in June as its aggressive incentives and discounts failed to lure more buyers into showrooms. It fell $1.11, or 2 percent, to $45.48 and was among the biggest percentage losers in the Dow average. The S&P Automobiles index dropped 2 percent.
Yahoo Inc. (YHOO) fell $2.10, or 6 percent, to $34.30 after Smith Barney cut its rating on the company to "hold" from "buy," saying the shares have "surpassed our prior price target."
Boeing (BA) dragged on the Dow, dropping $1.19, or 2 percent, to $49.90. Merrill Lynch reduced its investment rating on the aerospace company, saying restructuring at major airlines is far from complete.
Film studio Metro-Goldwyn-Mayer Inc. (MGM) got a boost on news that it could become the target of a bidding war. Time Warner Inc. (TWX) is putting together a cash-and-stock offer to acquire MGM, which would rival a proposal from Sony Corp. , said a source who knew of Time Warner's plans.
MGM gained 56 cents, or about 5 percent, to $12.66. Time Warner fell 17 cents to $17.41. But Sony shares rose 21 cents to $38.26 on the New York Stock Exchange.
Cardinal Health Inc. (CAH) slumped $17.19, or 25 percent, to $52.86, after the company said earnings for its just-completed fiscal year would miss forecasts. Several brokerages downgraded the pharmaceuticals wholesaler, which also disclosed that state investigators have joined a federal probe of its accounting practices.
Trading was brisk, with 1.5 billion shares changing hands on the New York Stock Exchange and 1.7 billion shares traded on Nasdaq.
The Russell 2000 index, which tracks smaller company stocks, was down 9.09, or 1.5 percent, at 582.43.
Overseas, Japan's Nikkei stock average finished 0.3 percent higher. In Europe, France's CAC-40 declined 0.5 percent, Britain's FTSE 100 lost 0.9 percent and Germany's DAX index closed 0.4 percent lower.
Reuters and the Associated Press contributed to this report.