US stocks fall despite upbeat employment report

Wall Street ended an ambivalent session lower today, with investors concerned that stock prices are too high despite a better-than-expected employment report. Still, the three main gauges posted their second straight weekly gain.

The indexes are near 52-week highs, and many investors had picked up shares in recent weeks in anticipation of strong employment. As a result, the market had little momentum to move upward once the report was released, analysts said.

“I think the employment report validates” investors’ expectations for strong growth, “but it was anticipated by the market going back six months,” said Joseph V. Battipaglia, chief investment officer at Ryan Beck & Co.

“The recovery is indeed on a solid footing, the expansion is finally appearing, and the great debate now is at what rate corporate profits can expand going into 2004 and in 2004,” he said.

The Dow Jones industrial average closed down 47.18, or 0.5%, at 9,809.79, having gained 36 points yesterday.

The broader market also finished lower. The Nasdaq composite index fell 5.63, or 0.3%, to 1,970.74, following a 17-point advance that lifted the tech-focused index to its highest level since January 17, 2002.

And the Standard & Poor’s 500 index dropped 4.84, or 0.5%, to 1,053.21, having risen six points yesterday.

The three main gauges finished higher for a second straight week, Dow gained 0.1%, the Nasdaq rose 2%, and the S&P advanced 0.2%.

The Labour Department reported today that the nation’s unemployment rate fell to 6% in October after 126,000 new jobs. Economists had predicted a more modest figure of 50,000 new jobs.

Stocks have moved mostly higher since mid-March as investors grow increasingly confident that the economic recovery is firmly back on track. But with the main gauges now trading at their highest levels in more than a year, analysts believe further advances could be difficult.

“I think we’re going to see some consolidation at this point,” said Ed Peters, chief investment officer at PanAgora Asset Management Inc. “We might even see a slight pullback and a rally later in the year.”

He also said it was hard to predict whether the Dow would hit the 10,000 mark and the Nasdaq would reach the 2,000 level by year’s end, citing in part the risk of rising bond yields.

“It’s a psychological barrier,” he added.

Eastman Kodak climbed 42 cents to 25 after chairman Daniel Carp said he would meet next week with investor Carl Icahn, who received clearance from the Federal Trade Commission to buy as much as 500 million of Kodak stock.

McDonald’s Corp. edged up 3 cents to 26.01 after the fast-food chain said October same-store sales jumped 8.4 percent.

Dow Chemical fell 35 cents to 37.64 after UBS lowered the company’s stock rating to “neutral” from “buy.”

Advancing issues outnumbered decliners 5 to 4 on the New York Stock Exchange. Volume was moderate.

The Russell 2000 index, a barometer of smaller company stocks, edged up 0.02 to 542.96.