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Stocks close lower as Dow snaps 2-day winning streak

Adam Shell
USA TODAY

The Dow Jones industrial average fell back into negative territory Thursday as investors reacted to mixed earnings results from two Dow components and digested last night's final presidential debate and the European Central Bank's decision today to keep interest rates and its stimulus plans unchanged.

Trader Michael Capolino works on the floor of the New York Stock Exchange, Monday, Oct. 17, 2016. (AP Photo/Richard Drew)

The Dow was hoping to notch its first three-session winning streak since Sept. 20-22 but failed as the blue-chip index fell  41 points, or 0.2% lower, to 18,162. The Standard & Poor's 500 stock index was 0.1% lower, and the Nasdaq dropped 0.1%.

American Express (AXP) continued the string of strong third-quarter earnings results from U.S. banks and financial services companies. After last night's close, AmEx reported earnings and sales results that topped forecasts and also boosted its profit guidance for the remainder of 2016. American Express shares jumped nearly 10%.

In contrast, shares of Dow component Verizon (VZ) fell 2.8% after it topped earnings forecasts but fell short on revenues amid fewer than expected new smart phone subscribers.

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Overall, the third-quarter earnings season is off to a better-than-expected start. Eight of the 10 companies that have reported results so far have topped forecasts, helping the S&P 500's earnings growth rate to tick up to +0.5%, according to earnings-tracker Thomson Reuters. If earnings finish positive, it would mark an end to a profit recession that has seen S&P 500 earnings contract for the prior four quarters.

"While we are still early in the third-quarter earnings season, there have been some pleasant surprises that hint at the possibility that the reality may not be as rough as the forecast," Robert Landry, portfolio manager of USAA Investment Solutions, said via e-mail.

In central bank news, the European Central Bank left its key interest rate on deposits at negative 0.4% and reiterated that it would continue its current 80 billion euro per month asset-purchase program until at least March 2017 as originally planned. Rumors circulated in recent weeks that suggested the ECB was considering tapering, (or dialing back), its asset purchases earlier than expected, which spooked some investors.

“What was most interesting today was not what the ECB did discuss – which appears to have been very little – but what they didn’t: being an extension of asset purchases beyond March 2017 or tapering of asset purchases,” Craig Erlam, senior market analyst at Oanda.

European Central Bank keeps stimulus program steady

The yield on the U.S. 10-year Treasury note was trading at 1.75% after falling earlier as low as 1.72% after the ECB's decision to stand pat on rates, while the value of the U.S. dollar versus a basket of foreign currencies rose 0.5%.

Wall Street, of course, is fixated on the U.S. central bank, and whether or not the Federal Reserve will hike interest rates for the first time this year at either its November or December meeting. Futures markets see little chance of a rate increase next month but see a 2 in 3 chance that the Fed will move in December if job market and U.S. economy continue to show improvement.

Last night's final presidential debate between poll front-runner Hillary Clinton and Donald Trump did little to change the dial on Wall Street, which has been placing high odds that Clinton will prevail.

"In many ways this last debate didn’t offer much new for financial markets though," says James Athey, fixed income investment manager at Aberdeen Asset Management. They have been coming to the conclusion that Trump’s chances of victory have been slimming for a few weeks now."

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In U.S. economic news, the number of Americans filing for first-time jobless benefits rose 13,000 to 260,000 above the 250,000 estimate, but still trending near the lowest levels of the past 40 years. The reading on October manufacturing in the Philadelphia region, the so-called Philly Fed, came in at 9.7, which topped expectations but was below the 19-month high of 12.8 in September. Data on September existing home sales came in stronger than expected, rising 3.2%, vs. expectations for a flat reading.

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