- Associated Press - Wednesday, August 17, 2011

NEW YORK (AP) — Stocks fluctuated Wednesday after companies gave mixed forecasts about how the fragile economy and rising costs will affect their growth.

The Dow Jones Industrial average fell 26 points, or 0.2 percent, to 11,380 in midafternoon trading. It was up as much as 120 around 10:30 a.m. The S&P 500 fell 1, or 0.2 percent, to 1,191. The Nasdaq composite fell 21, or 0.8 percent, to 2,502.

Target Corp., Staples Inc. and Dell Inc. all reported earnings for last quarter that were above analysts’ forecasts. Companies in the Standard & Poor’s 500 are on track to report higher profits for a ninth straight quarter. But economic growth is weak around the world, and some economists worry that a second recession may be coming. Investors fear that could hurt companies’ earnings in the future.

Target and Staples gave profit forecasts that were above Wall Street’s expectations, but Dell cut its prediction for revenue growth this year.

Four of the 10 sectors that make up the S&P 500 fell. Technology led the falling stocks with a 1.2 percent drop after Dell’s cut its forecast. More stocks rose than fell on the New York Stock Exchange, but only by a slim margin: About 16 rose for every 14 that fell.

“There are a whole bunch of contradictory signals in the system now, and it’s hard to tell which way to go,” said Charlie Smith, chief investment officer of Fort Pitt Capital Group, which has just over $1 billion in assets under management.

Investors are still worried about Europe. Some countries have borrowed so much that they may not be able to repay their bonds, and economic growth there has slowed. Concerns about a possible default by a European country have dominated the market in recent weeks, along with worries about the slow U.S. economy.

The increased role of automated trading by computers has increased volatility and made investing more difficult. “When you get a piece of news, it’s almost like the machines are trying to out-quick each other,” and they are sending stocks in straight lines up or down, Mr. Smith said. “That’s what really scares retail investors. We try to sit and wait in the weeds for good businesses at good prices.”

He has focused on telecom stocks and cable companies. Their relatively big dividend yields look more attractive, given the low yields on bonds. The yield on the 10-year Treasury note is at 2.17 percent, down from 3.34 percent at the start of the year.

Telecom stocks in the S&P 500 rose 1.5 percent Wednesday, the most among the 10 sectors that make up the index.

Companies also are feeling more pressure on costs. Higher food prices helped push inflation at the wholesale level to 0.2 percent in July, according to a government report Wednesday. That figure compares with a 0.4 percent drop in June but is still well below inflation levels earlier this year, when violence in the Middle East forced up oil prices. In February, wholesale prices rose 1.5 percent.

Preppy apparel retailer Abercrombie & Fitch Co. fell 7.8 percent after its CEO warned of challenges ahead. “Costing pressures will be greater in the second half of the year, and macroeconomic uncertainty has increased,” Mike Jeffries said after the company reported a 64 percent rise in profit last quarter.

Dell said late Tuesday its profit rose 63 percent last quarter on strong demand from businesses and government agencies. But it also cited “a more uncertain demand environment” when it cut its forecast for annual revenue growth to a range of 1 percent to 5 percent. That’s down from an earlier growth forecast for 5 percent to 9 percent. Dell stock fell 10.3 percent Wednesday.

Other companies are more optimistic. Retailer Target said it expects to earn between $4.15 and $4.30 per share this year. Analysts expected $4.14. Target also said its earnings last quarter rose 3.7 percent on sales of grocery, beauty products and other items. Target stock rose 2.1 percent.

Office products retailer Staples raised its profit forecast for the year after saying strong international sales pushed earnings up 36 percent last quarter.

John Deere also raised its forecast for full-year earnings. It now expects to earn $2.7 billion this fiscal year, up from a May forecast of $2.65 billion. The maker of tractors and other heavy equipment said its profit rose 15 percent last quarter on strong demand for farm equipment.

Stocks have been particularly volatile in August. Worries rose as the U.S. government said it might default on its debt unless it was allowed to borrow more. The government just beat the deadline to avoid a default, but the partisanship in the debate came at a cost: Standard & Poor’s downgraded the U.S. credit rating on Aug. 5 by one notch to AA+ from the top AAA rating. That triggered one of Wall Street’s wildest weeks: The Dow rose or fell by at least 400 points in each of the first four days of last week, the first time that has happened.

Markets appear to have calmed somewhat since then. Tuesday marked the first time since the Aug. 5 downgrade that the Dow rose or fell by less than 100 points. It fell 76 points on worries about Europe’s ability to contain its debt problems.

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