Profit collections drive stocks lower, end streak

Investors closed out a stellar July by collecting profits Friday, sending stocks lower despite a respectable reading in the nation’s gross domestic product. The major indexes finished the week mixed, ending four consecutive weeks of gains, but had big advances for the month.

The Commerce Department’s latest reading on GDP showed the economy growing at an annualized rate of 3.4 percent. While economists had expected GDP growth to come in at 3.5 percent, it was considered a strong showing considering the high energy costs that continue to plague the economy.

“This is good growth, and it’s not the type of growth that’s going to scare people from an inflation standpoint,” said Mark Bronzo, managing director at Gartmore Separate Accounts. “However, from this number, I would think the Federal Reserve will continue to raise interest rates, at least for the next few meetings.”

The Fed next meets Aug. 9, and is widely expected to raise the nation’s benchmark interest rate by a quarter percentage point to 3.5 percent. The prospect of further rate hikes may also have been a factor in profit-taking by investors fearing a further slowdown in the economy.

The Dow Jones industrial average fell 64.64, or 0.60 percent, to 10,640.91.

Broader stock indicators also fell. The Standard & Poor’s 500 index was down 9.54, or 0.77 percent, at 1,234.18, and the Nasdaq composite lost 13.61, or 0.62 percent, to 2,184.83.

A string of bullish economic data and strong corporate earnings combined to make July a strong month on Wall Street. The Dow gained 3.56 percent, while the S&P rose 3.6 percent and the Nasdaq surged 6.22 percent. The Nasdaq, which enjoyed very positive earnings reports from the technology sector, saw its best month since December 2003.

But while profits remained strong this week and the economic data was generally sound, the rally that kept stocks climbing for all of July appeared to be running out of momentum, and investors opted to start cashing in. For the week, the Dow fell 0.1 percent, while the S&P edged 0.04 percent higher and the Nasdaq gained 0.23 percent.

Friday’s profit-taking extended to the bond market, which rallied Thursday but dropped sharply Friday. The yield on the 10-year Treasury note climbed to 4.28 percent from 4.19 percent late Thursday. The dollar gained ground against the euro, and gold prices also rose.

Fears about oil’s effect on the economy contributed to the negative tone as oil prices again topped $60 per barrel. A barrel of light crude settled at $60.57, up 63 cents, on the New York Mercantile Exchange.

The market’s losses were limited, however, as a key barometer of future economic growth showed consumers appear willing to spend despite higher oil and gas prices. The University of Michigan’s consumer sentiment index for July came in at 96.5, slightly higher than the June reading and in line with analysts’ expectations.

“Yes, you have good economic data, but you’re running up against a market that’s recently hit some very good highs,” said Rod Smyth, chief investment strategist at Wachovia Securities. “July was a great month for stocks. But now traders are starting to think that we’re done for now, that the upside-to-downside odds, in the short term, are getting less and less good.”