Boeing's 787 delay stalls the rally

The Dow Jones industrials fell about 86 points today, to 14,079, mostly due to Boeing's (BA, news, msgs) announcement that it would delay the first deliveries of its 787 Dreamliner by six months. The loss took out more than 70% of Tuesday's 121-point gain to a record 14,165.

A pullback from the rally was probably inevitable, and it's worth noting that traders were able to cut what had been a 155-point loss in the Dow today nearly in half.

Boeing, one of the 30 Dow components, was off 2.8% to $98.68 and contributed 23 points of the Dow's loss. Boeing cited "continued challenges" in completing assembly of the first airplanes and delayed deliveries until next November or December.

The Standard & Poor's 500 Index was nearly 3 points lower to 1,562, with Boeing's loss offsetting the strength provided when Costco Wholesale (COST, news, msgs) reported surprisingly good results for its fourth quarter.

Costco led the S&P 500 with a 9.2% gain to $69.13 and was a big reason the Nasdaq Composite Index closed up nearly 8 points to 2,812.

Only nine of the 30 Dow stocks were higher on the day, along with 187 S&P 500 stocks. Fifty-two of the 100 stocks in the Nasdaq-100 Index ($NDX.X) were higher, again led by Costco. The Nasdaq-100 was up nearly 6 points to 2,177.

Wal-Mart Stores (WMT, news, msgs), one of Costco's biggest rivals, was the Dow leader with a 0.8% gain to $45.59. The Standard & Poor's Retail Index ($RLX.X) was up slightly on the day to about 490.

Among the 20 Dow stocks that fell back were companies that may be affected by the Boeing delay: United Technologies (UTX, news, msgs), which makes jet engines, down 0.8% to $80.52, and Honeywell International (HON, news, msgs), down about 1% to $60.67. Honeywell makes instrumentation used in commercial airplanes.

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The market was weak before the Boeing announcement because of some investors were cashing in their winnings from Tuesday's big rally.

In addition, earnings warnings from the likes of Chevron (CVX, news, msgs) and Valero Energy (VLO, news, msgs) and investor disappointment with Alcoa's (AA, news, msgs) third-quarter earnings, released last night, weighed on the market.

The UAW cuts a deal with Chrysler

While the United Auto Workers walkout this morning against Chrysler made investors uneasy about the market, the UAW said late today that a tentative settlement has been reached and the strike has been called off.

Workers had walked off the job this morning at 17 of the 22 U.S. Chrysler plants; the other five plants are idled or going through a product change.

Chrysler wanted more cost savings than the deal struck between the UAW and General Motors (GM, news, msgs). And the automaker wanted more job cuts, as well as health-care concessions that had been granted to GM and Ford Motor (F, news, msgs) in 2005 but not to Chrysler. The health-care savings could add up to $300 million a year.

Private-equity firm Cerberus Capital Management owns 80% of Chrysler.

Boeing delay had been building

Boeing said the delay in 787 deliveries was not expected to have a material effect on its earnings for this year or for 2008. But the announcement still shocked Wall Street.

Nonetheless, there had been signals the development of the plane, which represents Boeing's future, wasn't going as smoothly as hoped.

Boeing said the first 787 deliveries, to All Nippon Airways of Japan, were now scheduled to begin in late November or December 2008, instead of the original target date of May. The first test flight, which had been expected by the end of this year, is now expected to take place by the end of March.

On Sept. 5, Boeing pushed back the first test flight to mid-November or mid-December due to complications with final assembly and finalizing flight-control software, The Seattle Times reported. That would have left the company just five to six months before the first delivery, or about half the time it took to test the 777 airliner a decade ago.

Boeing first acknowledged problems meeting the original test-flight schedule in August, the newspaper noted, when it cited ongoing challenges with out-of-sequence production work, including parts shortages, and remaining software and systems integration activities.

The Wall Street Journal reported that suppliers at factories in Italy, Japan and the United States continue to experience chronic parts shortages that have slowed the completion of the first six flight-test airplanes.

Boeing confirmed it also has sent hundreds of engineers to help smaller third-tier suppliers in places such as Israel meet the demand for components such as vertical frames that the larger suppliers need to complete their sections of the plane's fuselage.

Energy, tech shares bring strength

Ironically, what helped the market trim its losses was a recovery in crude oil to $81.30 a barrel in New York, up 1.3% from Tuesday. Crude had fallen to $79.72 in early trading before buying set in.

Tom Bentz, a broker at BNP Paribas, told Bloomberg News that reports of a possible invasion of northern Iraq by Turkey set off the rally. The Turks has threatened to invade northern Iraq unless Iraqi and U.S. authorities curb strikes by the separatist Kurdistan Workers' Party, which is based in Iraq. Iraq has the world's third-biggest proved oil reserves.

The crude rise helped energy stocks overall move higher. ExxonMobil (XOM, news, msgs) was the second-best Dow performer with a 0.5% gain to $93.13. Oil services giant Schlumberger (SLB, news, msgs) jumped nearly 3.5% to $108.26.

Tech stocks overall held their own. Google (GOOG, news, msgs) continued its strong march higher, moving up 1.7% to $625.39. Research in Motion (RIMM, news, msgs), maker of the BlackBerry mobile device, jumped 1.2% to nearly $117.

Energy prices -- New York close

	Wed.	Tues.	Chg.	Month chg.	YTD chg.
Crude oil (NYMEX) (per barrel)	$81.30	$80.26	$1.04	-0.44%	33.17%
Heating oil (per gallon)	$2.2172	$2.1853	$0.0319	-0.92%	38.76%
Natural gas (per million BTU)	$7.0100	$6.8630	$0.1470	2.04%	11.29%
Unleaded gasoline (per gallon)	$2.0336	$2.0202	$0.0134	-1.68%	26.93%

Shoppers still going to Costco

Consumers are still spending at Costco, it seems.

The bulk retailer today reported fourth-quarter net income of $372.4 million, or 83 cents per share, up from $355.6 million, or 75 cents per share, in the same period last year.

Earnings were in line with analysts' estimates and came in on the high end of Costco's earlier guidance of 81 cents to 83 cents a share.

Revenue rose 3% to $20.1 billion in the quarter; sales at stores open at least one year rose 5%.

Alcoa reports miss estimates

The unofficial start to third-quarter earnings season kicked off late Tuesday with aluminum giant Alcoa.

• Video: More on Costco's earnings

Alcoa said profit for the quarter rose 3% to $555 million, or 63 cents per share, up from $537 million, or 61 cents per share, in the same period a year ago.

Excluding charges from discontinuing operations, earnings were 64 cents per share, a penny short of Wall Street's estimate.

"Macroeconomic drivers such as the weakening U.S. dollar, higher petroleum costs and market softness in North America impacted the quarter," Chief Executive Officer Alain Belda said in a press release. "Despite these challenges, we have established all-time records for revenue, net income, earnings per share and cash from operations in the first nine months of the year."

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Alcoa also said it is boosting its share buyback program to 25%, or 217 million shares outstanding. The company's previous program had authorized a buyback of 5% of its shares outstanding, which had been completed by the end of the third quarter.

Alcoa shares fell 2.5% to $38.73, second-worst among Dow stocks.

International Paper, Chevron, Valero warn

International Paper (IP, news, msgs) had some bad news for its third quarter: The paper company said late Tuesday that its profit from land sales would be $100 million, down from a previous forecast of between $110 million and $140 million.

The company said it still expects to beat year-ago earnings of 52 cents per share. Analysts had been looking for earnings of 63 cents per share.

International Paper shares fell 2.3% to $36.21 on the day.

Oil giant Chevron also warned late Tuesday that third-quarter net income would be "significantly below" the record $5.4 billion it earned in the second quarter. The company blamed a sharp drop in its refining margins after a fire plagued its biggest refinery in August.

The price of natural gas fell 12% to $5.75 per thousand cubic feet in July and August.

Chevron did not give any details as to how far below second-quarter earnings of $2.52 per share the third quarter would be.

Shares fell 0.9% to $91.99.

Meanwhile, Valero said it expects earnings from continuing operations, excluding special items, to be $1.30 to $1.40 per share. Like Chevron, refining margins are getting squeezed. Thomson Financial said analysts had been expecting earnings of $1.91 per share.

Valero shares jumped 2.7% this afternoon to $74.20 after sinking as low as $69.95 earlier in the session.

Cadbury Schweppes will spin off drinks unit

Candy company Cadbury Schweppes (CSG, news, msgs) decided to spin off its beverages division after struggling to find a buyer.

Cadbury, which first announced it was selling the unit that makes Dr Pepper, Snapple and 7-Up in March, extended the sale deadline in July because of poor market conditions -- it was one of the first companies to be hit by the spillover of the subprime-mortgage-market meltdown.

The board "does not believe current market conditions will facilitate an acceptable sale process in the foreseeable future," the company said in a press release. The company's move to focus on its candy and chocolate business was bolstered by CEO Todd Stitzer's announcement today that confectionary sales rose 10% in Europe.

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But Stitzer did not completely quash the idea of a future sale, saying that he will pursue what's best for the company.

The spun-off business will be listed on the New York Stock Exchange in the second quarter of 2008.

Shares of Cadbury Schweppes were up 2% to $50.25 this afternoon.

Short hits from the markets -- 4 p.m. ET

	Wed.	Tues.	Chg.	Month chg.	YTD chg.
Treasurys
13-week Treasury bill	3.935%	3.910%	0.025	6.35%	-19.45%
5-year Treasury note yield	4.368%	4.368%	0.000	3.29%	-7.08%
10-year Treasury note yield	4.647%	4.651%	-0.004	1.49%	-1.34%
30-year Treasury bond yield	4.863%	4.864%	-0.001	0.62%	0.93%
Currencies
U.S. Dollar Index	78.30	78.41	-0.11	0.87%	-6.02%
British pound in dollars	$2.0433	$2.0379	0.0054	-0.20%	4.27%
Dollar in British pounds	£0.4894	£0.4907	-0.0013	0.20%	-4.10%
Euro in dollars	1.4150	1.4110	0.0040	-0.82%	7.20%
Dollar in euros	€ 0.7067	€ 0.7087	-0.0020	0.83%	-6.72%
Dollar in yen	¥117.22	¥117.10	0.12	2.15%	-1.51%
Commodities
Gold	$746.00	$743.10	$2.90	-0.53%	16.93%
Copper	$3.6940	$3.6175	$0.076	1.48%	28.67%
Silver	$13.6680	$13.5830	$0.08	-1.81%	5.01%
Crude oil (NYMEX) (per barrel)	$81.30	$80.26	$1.04	-0.44%	33.17%

No recession coming

Despite the mortgage-market mess, the housing slump and warnings from former Federal Reserve chief Alan Greenspan, most economists think the U.S. economy will avoid a recession.

The economy will grow at a 1.8% annual rate in the fourth quarter, according to the median forecast of a Bloomberg survey of economists, and the Fed will cut interest rates again at its meeting later this month.

"Financial markets have improved, but they're not back to normal," Stephen Stanley, chief economist at RBS Greenwich Capital in Greenwich, Conn., told Bloomberg. "As an insurance move, the Fed can ease once more and speed up the process of getting things back to normal."

Bloomberg surveys 71 economists each month on the economy.

By Charley Blaine and Elizabeth Strott