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Stocks finished sharply lower Friday, following high-profile revenue warnings and a payroll report that spurred hopes of an end to the Federal Reserve's interest-rate hikes. Profit-taking probably helped deepen losses, while a decline in Treasury yields failed to support equities amid concerns about slowing economic growth and rising inflation, says Standard & Poor's Equity Research.
The Dow Jones industrial average fell 134.63 points, or 1.2%, to 11,090.67, a loss of 0.5% during the holiday-shortened week. The broader Standard & Poor's 500 index dropped 8.6 points, or 0.67%, to 1,265.48, finishing the week down 0.4%. The tech-heavy Nasdaq composite slid 25.03 points, or 1.16%, to 2,130.06, for a 1.9% weekly decline.
NYSE breadth was solidly negative, with 21 issues declining for every 12 advancing, while NASDAQ breadth was 22-8 negative.
A soft employment report the highlight at the outset Friday. Nonfarm payrolls added 121,000 in June after an upwardly revised 92,000 in May, according to the Labor Department. The headline number falls below expectations for a strong gain, but the underlying data are solid, says Action Economics. Average hourly earnings climbed 0.5%.
However, the report may not have much impact on Fed policy, some analysts say. "Month-to-month new job counts are too ambitious an undertaking to achieve accuracy," Citigroup senior economist Steven Wieting says in a report. "We doubt policymakers will rely heavily on today's data."
Central bankers remain likely to raise interest rates again at the Fed's Aug. 8 meeting, others say. "Data on earnings, hours and the unemployment rate are likely to be taken as evidence that monetary policy has not been tightened significantly to quell inflation pressures," notes Joseph LaVorgna, chief U.S. fixed income economist at Deutsche.
Next week's economic calendar kicks off with reports on wholesale trade and consumer credit. June retail sales, May trade, June import and export prices, July preliminary consumer sentiment, and May business inventories are also on the docket. The data will likely have only moderate impact on the outlook for the economy and the Fed, says Action Economics.
In corporate news Friday, Advanced Micro Devices (AMD) was lower after the chipmaker warned of a drop in second-quarter revenue as compared to the first quarter, following price cuts by larger rival Intel (INTC).
Dow member 3M (MMM) was down sharply after revising its second-quarter earnings and sales guidance below Wall Street estimates. Earlier, JPMorgan Chase raised its recommendation on the stock from neutral to overweight.
Shares in General Motors (GM) rose after Deutsche Bank upgraded the stock from sell to hold, as the automaker meets to discuss a possible pact with Japanese peer Nissan (NSANY) and France's Renault.
Also in analyst calls, Goldman Sachs lowered its rating on telecommunications company Qwest (Q) from in-line to underperform. Shares declined.
Elsewhere, Starbucks (SBUX) was lower after the coffee retailer reported a 6% increase in June same-store sales, below Street expectations.
Earnings season kicks into high gear next week, with aluminum producer Alcoa (AA) set to post results Monday. Quarterly reports are due later in the week from Genentech (DNA), Pepsi (PEP), Tribune (TRB) and General Electric (GE), among others.
In the energy markets Friday, August West Texas Intermediate crude oil futures closed down $1.05 at $74.09 a barrel after upbeat comments from Iran's nuclear negotiator. Profit-taking drove the decline, says Action Economics.
European markets finished modestly lower. In London, the Financial Times-Stock Exchange 100 index inched lower 1.1 points, or 0.02%, to 5,888.9. Germany's DAX index shed 13.62 points, or 0.24%, to 5,681.85. In Paris, the CAC 40 index was down 12.74 points, or 0.26%, to 4,953.71.
Asian markets finished mixed. Japan's Nikkei 225 index edged down 13.79 points, or 0.09%, to 15,307.61. In Hong Kong, the Hang Seng index crept higher 18.79 points, or 0.11%, to 16,459.79. Korea's Kospi index climbed 9.97 points, or 0.79%, to 1,273.93.
Treasury Market
Treasury yields dipped following the milder-than-expected employment report. The 10-year note rose in price to 99-30/32 for a yield of 5.13%, while the 30-year bond climbed to 89-27/32 for a yield of 5.17%. It remains to be seen whether the economic data will be enough to deter the Fed from further rate hikes, says Action Economics.
Hogan is a reporter for BusinessWeek Online in New York
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