Stocks finish modestly higher

On the floor of the New York Exchange.
  • Stocks give up gains, turn mixed throughout trading session.
  • Apple shows gains after big loss on Wednesday.
  • ETFs’ huge positions in Apple point up difficulty in indexing a stock sector.
  • Stocks ended the day up Thursday after a trading session marked by changes in direction throughout the day. Investors seem to be continuing their focus on negotiations in Washington over avoiding the tax increases and spending cuts of the “fiscal cliff.”.

    “Everybody is paying close attention to the soap opera in Washington,” said John Canally, investment strategist and economist at LPL Financial.

    The Dow Jones industrial average ended up 39.62 points, 0.3%, to 13,074.11. The broader Standard & Poor’s 500 index finished 4.66 points higher, 0.3%, to 1,413.94. The tech-heavy Nasdaq composite index closed up 15.57 points, 0.5%,to 2,989.27, just shy of the psychologically significant 3,000 level.

    President Obama said Wednesday that the White House and Republicans could reach an agreement “in about a week” if Republicans drop their opposition to raising taxes on those making more than $250,000 a year. That helped give the stock market its first gain of the week.

    Most investors believe Obama and Congressional Republicans will strike a budget deal to avoid the “fiscal cliff” before the year is out. Until they reach an agreement, however, the stock market will likely be hostage to news out of Washington.

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    “Yesterday was a good day,” Canally said. “But we’ll probably have a lot of bad days before we’re through.”.

    For the month, the S&P 500 is down 0.5% and the Dow is up 0.1%. The Nasdaq has lost 1.2%.

    The Labor Department said unemployment benefits applications dropped 25,000 last week to 370,000, a level consistent with modest hiring.

    The report comes a day before the government releases its closely watched monthly employment report. Private economists forecast that hiring in November sank sharply from the previous month. The unemployment rate is expected to remain unchanged at 7.9%.

    Apple (AAPL) shares end up $8.454, 1.6%, to $547.24, a day after taking its worst fall in four years. In separate interviews, CEO Tim Cook said Apple will produce one of its existing lines of Mac computers in the United States next year and will spend $100 million in 2013 to shift production of the line from China.

    The price of crude oil fell $1.57, or 1.8%, to end at $86.31 a barrel Thursday, while the price of gold ended up $6.50, 0.4%, to $1,698.90 an ounce.

    The yield on the 10-year Treasury note dropped modestly to 1.58% as the national average rate for 30-year fixed-rate mortgages edged up last week to 3.34%, just above the record 3.31% low hit two weeks ago.

    In currency trading, the euro slipped 0.8% against the dollar, finishing at 1.2868, while the dollar held steady against the yen at 82.40.

    Europe’s Central bank left its benchmark interest rate unchanged at record lows. The central bank cut its growth forecast for next year from positive to negative.

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    In overseas trading, major stock indexes in Germany and France finished higher Thursday, surprising market-watchers who say both markets are at 52-week highs despite ongoing concerns about Europe’s economy and budget negotiations in the U.S. Along with worries about whether China’s slowdown is beginning to reverse. A key stock index in London ended Thursday modestly higher.

    In Asia, major stock indexes in most countries closed higher, with the exception of stock indexes in Shanghai and Hong Kong.

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    In other major stock action:.

    H&R Block (HRB) shares closed up 5.1% after posting revenue and earnings that beat analysts’ estimates. The largest U.S. Tax preparation company reported a smaller loss, helped by cost-cutting efforts. It typically turns in a loss in the August-to-October period because it takes in most of its revenue during the U.S. Tax season. H&R Block gained 65 cents to $18.02.

    Men’s Wearhouse (MW) stock ended down 2.7% after the men’s clothing company’s third-quarter results missed Wall Street’s estimates. The company also cut its full-year and fourth-quarter profit forecasts.

    Boeing (BA) finished down 0.2% to just under $74. United Airlines said a failed electrical generator in one of its new Boeing 787s caused the plan to make an emergency landing in New Orleans, shortly after taking off from Houston.

    Lululemon Athletica (LULU) shares rose 7.3%. The Canadian yoga wear maker said it expects sales growth to slow. Its fourth-quarter earnings and revenue forecasts also came in below Wall Street’s expectations.

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    Despite Apple’s gains Thursday, a day earlier its stock (AAPL) dragged down the entire Nasdaq composite index.

    If you bought a technology ETF to diversify your tech holdings, you may have noticed that Apple’s woes are yours as well. And that’s because Apple is such a big slice of the largest technology ETFs.

    Powershares QQQ, Qubes, as they’re called, have 18.8% of their assets in Apple, according to Morningstar. QQQ fell 1.1% Wednesday though they did recover 0.6% Thursday.

    Technology Sector Select SPDR (XLK) has 19.2% of its assets in Apple. It fell 1.0% Wednesday, recovering 0.6% Thursday.

    Vanguard Information Technology ETF (VGT), 20.5% in Apple. It fell 1% Wednesday, and regained 0.7% Thursday.

    IShares Dow Jones U.S. Techology (IYW) has 22.9% in Apple. The fund fell 1.3% Wednesday, rebounding 0.8%.

    These funds’ huge positions in Apple point to a problem with indexing in a stock sector, especially when the index gives greater weight to stocks with larger market capitalization — stock price multiplied by shares outstanding.

    Apple is a behemoth, weighing in at over $500 billion. Rival Microsoft, the second-largest holding in QQQ, has a market cap of just under $225 billion. The tech sector is so top-heavy by capitalization weighting that the five-largest members of the Nasdaq 100 index are 41.5% of the index. But if you buy a tech ETF, your biggest slice by far is Apple.

    Contributing: Associated Press; USA TODAY’s John Waggoner.

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