After bouncing higher for most of the day, stocks succumbed to selling in the last hour of trading Friday, ahead of the Memorial Day holiday weekend. Investors debated whether the rounding action of the past two weeks will turn into a correction or just a modest consolidation, says S&P MarketScope.
On Friday, the 30-stock Dow Jones industrial average finished with a loss of 14.81 points, or 0.18%, to 8,277.32. The broader S&P 500 index lost 1.33 points, or 0.15%, to 887.00. The tech-heavy Nasdaq composite index fell 3.24 points, or 0.19%, to 1,692.01.
With no economic reports to focus on Friday, Treasuries plunged on U.S. debt worries, with 10-year notes falling to 97-09/32 for a yield of 3.455%. Treasury Secretary Timothy Geithner said the U.S. must cut deficits, yet he called for more stimulus. Geithner told Bloomberg Television he is committed to cutting the budget deficit as concern about deteriorating U.S. creditworthiness deepened, and ascribed a sell-off in Treasuries to prospects for an economic recovery. "It's very important that this Congress and this president put in place policies that will bring those deficits down to a sustainable level over the medium term," Geithner said in an interview Thursday with Bloomberg Television.
Worries about the debt levels in the U.S. surfaced Thursday after Standard & Poor's Ratings Services lowered its outlook for England's sovereign debt, putting widespread focus on the massive debt burdens many developed nations are facing. "A key concern in all of this is the idea that foreign investors will pull their money out of dollar assets, in particular Treasury securities, at a time when the U.S. needs massive amounts of capital to fight its battle against the financial and economic crisis," wrote Tony Crescenzi at Miller Tabak in a note on Friday. "While there are legitimate reasons to believe that foreign central banks will be diversifying out of dollar assets in the time ahead, for many reasons they are not likely to do so overnight and evidence of a sudden shift is lacking."
The dollar index was off 0.48 to 79.99, continuing a decisive downtrend that could take the index much lower. Citigroup analysts said the dollar may be on the "threshold of broad-based" weakness in the medium term. "There is considerable concern that escalating U.S. debt will make the buck less valuable and drive traders into other currencies," says S&P MarketScope.
Gold futures pushed toward $1,000 per ounce in a flight to safety on Friday. Crude oil futures rose to $61.59 per barrel amid debate over demand; experts see no OPEC changes at Wednesday's meeting.
Many market analysts have been predicting a pullback in stocks after the fast run up from the Mar. 9 lows. Former hedge fund manager Michael Steinhart told Bloomberg Television that he doesn't see stocks doing much if the economy muddles along.
General Motors (GM) shares lost ground after the Washington Post reported the Obama administration is preparing to send into bankruptcy as early as the end of next week under a plan that would give the automaker tens of billions of dollars more in public financing as the company seeks to shrink and reemerge as a global competitor. The move comes as the administration prepares to lift the nation's other faltering car company, Chrysler, from bankruptcy protection as soon as next week, industry sources told the newspaper.
Among other stocks in the news Friday, Sears Holdings (SHLD) was higher after unexpectedly reporting a profit. The retailer posted $0.21, vs. $0.43, first quarter EPS on 7.4% lower domestic same-store sales, 9% lower total revenue. The Street was looking for an $0.88 loss. Also, Sears said it has extended maturity date of its revolving credit facility and increases borrowing capacity over the original amount to $4.1 billion.
Analysts applauded cost cutting efforts at Autodesk (ADSK) on Friday, after the software maker's adjusted first-quarter earnings far outpaced expectations despite a sharp drop in revenue. The company posted $0.18, vs. $0.50, first quarter non-GAAP EPS on 29% revenue rise. The Street was looking for EPS of $0.08. Autodesk sees non-GAAP EPS of $0.15-$0.20 on revenue of $395-$420 million. S&P Equity Research upgraded the stock to hold from sell, while KeyBanc upgraded it to hold from underweight.
Archer-Daniels-Midland (ADM) shares rose after Citigroup upgraded to hold from sell. It says due to the worst drought in Argentina in 40 years, U.S. now appears very likely to benefit as demand shifts north for soy meal. Strength of this positive has only recently become clear, as cash soy crushing margins have improved by $0.32/bu, or 91%, in just the last 6 weeks. Thus, what looked like a dismal outlook now appears more reasonable for grain processors ADM and Bunge (BG).
Red Robin Gourmet Burgers (RRGB) shares tumbled after it reported $0.25, vs. $0.43, first quarter GAAP EPS on 8.1% lower company-owned same-store sales, 6.0% hgiher total revenue. Current first quarter earnings included $0.19 in compensation expense and $0.03 in costs related to the closing of 4 company-owned restaurants. It continues to expect that traffic will remain negative in 2009. S&P upgraded the stock to buy from sell. JP Morgan reportedly downgraded it to neutral from overweight.
McCormack is senior producer for BusinessWeek.com's Investing channel.