US stocks fall on Microsoft outlook

US stocks finished mostly lower today as a tepid outlook from Microsoft dampened Wall Street’s reaction to a rebound in first-quarter economic growth. The major indexes ended mixed both for the week and for April.

The Dow Jones industrial average dropped 15.37, or 0.14%, to 11,367.14.

Broader stock indicators were mixed. The Standard & Poor’s 500 index added 0.89, or 0.07%, to close at 1,310.61, and the Nasdaq fell 22.38, or 0.95%, to end on 2,322.57.

Coupled with lower-than-expected results for the latest quarter, Microsoft’s reduced forecast sent its stock falling more than 11% and led a broader decline in the Nasdaq composite index.

The earnings disappointment overshadowed news that the US gross domestic product grew 4.8% last quarter from a 1.7% rise in the fourth quarter. The gain was less than economists’ estimates of 4.9%, which suggested the economy was expanding at a comfortable pace.

But while the GDP’s inflation component surged 3.3% – well ahead of a 2.7% target – the Labour Department said employment costs grew just 0.6% last quarter, the smallest rise since 1999 and behind views of 0.9%.

Art Hogan, chief market analyst for Jefferies & Co, said the economic data were benign for inflation and the debate over interest rates, and noted a recovery among commodities and energy prices.

“With that as a backdrop, I’m not surprised to see” the Nasdaq down and little changes in the other major indexes, Hogan said. “Of course, when you have a marquee name like Microsoft disappoint, it’s hard to sit up on good news.”

Bonds climbed on the GDP data, with the yield on the 10-year Treasury note slipping to 5.07% from 5.11% on Thursday. The dollar was mixed against other major currencies, and gold prices surged.

Crude futures recovered from four days of losses, lifted by supply worries after the International Atomic Energy Agency said Iran defied the UN Security Council by enriching uranium. A barrel of light crude rose 91 cents to settle at 71.88 on the New York Mercantile Exchange.

Wall Street also weighed a dip in consumer confidence as soaring petrol prices threatened discretionary spending. The University of Michigan’s April consumer-sentiment index slid 1.8 points to 87.4, while economists expected a 0.2-point drop.

Erratic trading left the major indexes flat for the week, with the Dow gaining 0.17% and the S&P 500 off 0.05%. The Nasdaq lost 0.87% after Friday’s decline gave back most of its advance from earlier in the week.

For the month, however, the Dow jumped 2.32% and the S&P 500 added 1.22%, while the Nasdaq slid 0.74%. The Dow earned much of its April gains from recent indications that the Federal Reserve may soon pause or halt its series of interest rate hikes.

Analysts say the overall mood of the market has improved as government reports continue to paint an uplifting picture of the economy. Now that the Fed may have boosted rates just enough to stifle demand, the market is looking for growth to gently taper in the latter half of the year, said Ed Keon, chief investment strategist for Prudential Equity.

“There’s still some danger that inflation could pick up, and higher energy prices could feed into that,” Keon said. “But overall, it does not look like substantial inflationary pressures are developing.”

Software giant Microsoft’s earnings saddled the tech sector, and its shares fell 3.10 to 24.15.

Citigroup gave the Dow some support after Piper Jaffray upgraded the financial services firm to ”outperform”, citing improving margins and a pickup in the capital markets. Citigroup rose 1.80 to 49.95.

Prudential Equity’s upgrade of the banking sector lifted stocks elsewhere, with JPMorgan Chase adding 1.43 to 45.38, and Bank of America rising 88 cents to 49.92.

Chevron was the latest US oil company to post a strong quarterly profit, which jumped 49% to 4 billion as high energy prices propelled its results. Chevron gained 1.04 to 61.02.

UnitedHealth Group rose 1.99 to 49.74 following a government report that the health insurer won the biggest share of participants – about 27% of overall enrolment – in the new privately administered Medicare drug programme.

Advancing issues led decliners by 19 to 13 on the New York Stock Exchange, where volume of 1.8 billion shares lagged the 2.09 billion shares changing hands yesterday.

The Russell 2000 index of smaller companies rose 3.14, or 0.41%, to close at 764.54.

Elsewhere, Japan’s Nikkei stock average lost 1.22%. the FTSE 100 fell 0.61%, Germany’s DAX index slid 0.95% and France’s CAC-40 was lower by 0.48%.