U.S. stocks closed lower Friday in moderate trading ahead of the extended holiday weekend. Weakness in financial issues gradually spread into the broader market as the session progressed.
On Friday, the 30-stock Dow Jones industrial average finished lower by 82.35 points, or 1.04%, at 7,850.41. The broad S&P 500 index was off 8.35 points, or 1.00%, at 826.84. The tech-heavy Nasdaq composite index shed 7.35 points, or 0.48%, to 1,534.36.
On the New York Stock Exchange, 19 stocks were lower in price for every 12 that advanced. Nasdaq breadth was 14-13 negative.
Treasuries fell sharply in a holiday shortened session. The dollar index firmed after seesawing inside a narrow trading range. Gold futures fell. Energy futures were mixed.
Next week's key economic releases include a report on industrial production in January, due on Wednesday. Investors will also get a updates on the housing sector, starting on Tuesday with the February homebuilders survey. Then on Wednesday the government offers a look at January housing starts. Both are at record lows and still reeling from the economy's accelerating weakness.
The second group of reports will cover inflation. Look for January reports on import prices on Wednesday, producer prices on Thursday, and consumer prices on Friday.
Also, several Federal Reserve officials will be speaking, including Fed Chairman Ben Bernanke on Wednesday. The markets will be listening closely to what he has to say about the Fed's ongoing efforts to stabilize the credit markets.
On Friday, investors' focus remained primarily on Washington, where the House passed President Obama's $787 billion economic stimulus plan. As of the market's closing bell, a Senate vote on the plan was pending. There was much skepticism over the plan, notes S&P MarketScope.
The market also looked ahead to the weekend's G7 meeting in Rome, where Treasury Secretary Timothy Geithner is expected to call for coordinated global action against the economic downturn amid worries about a rising tide of protectionism worldwide.
Trading was slow before the holiday weekend. U.S. financial markets are closed Monday for Presidents' Day.
There was little reaction to a report the University of Michigan's consumer sentiment index eased to 56.2 in February from January's 61.2.
Temporary mortgage foreclosure moratoriums have been confirmed by several major U.S. banks pending an expected release of details on the Obama Administration's mortgage relief plan perhaps as early as next week, reports Action Economics. Citigroup (C) said it would begin its moratorium from Feb. 12 through Mar. 12 or when the plan is released. Bank of America (BAC) and JPMorgan Chase (JPM) have committed to similar temporary plans and under Treasury Secretary Geithner's Financial Stability Plan (FSP) any banks receiving TARP money are compelled to take part in foreclosure mitigation programs.
"Though this makes no mention of the subsidies rumored late yesterday, it's clear the kitchen sink is about to be thrown at the housing problem," says Action Economics.
Congressional leaders moved swiftly on Thursday to schedule votes in the House and Senate on the $789 billion economic stimulus plan, reports the New York Times, while lawmakers spent much of the day hammering out the final details of the legislation. At some points on Thursday, there was confusion among top White House and Congressional officials over whether certain provisions were in the bill -- a bit discomfiting for House Democrats, who had promised at least 48 hours of public review before a vote. At 10:45 p.m. ET, the final text was posted to a House Web site. Among the last-minute changes on Thursday was a slight expansion of a tax break for businesses favored by the Senate Republicans who provided crucial votes for the bill. The provision lets companies claim refunds by applying current losses to prior profitable years. Another late insertion was a $3.2 billion tax break specifically intended for the failing auto giant General Motors that allows it to claim refunds for taxes paid in earlier, profitable years. General Motors and Chrysler received a multibillion dollar federal bailout in December to prevent them from collapsing.
The stimulus bill also includes limits on pay and bonuses for executives of companies that have received rescue money from the Treasury's financial system bailout program. The caps would apply not only to companies that get help in the future, but also to those that already accepted bailout money. And while many initiatives were scaled back as Congress and the White House sought to cut the overall cost, there were some surprise increases, including a quadrupling of money for high-speed rail projects to $8 billion.
In economic news Friday, U.S. consumer sentiment fell to 56.2 in the preliminary February report from the Reuters/University of Michigan survey. That's lower than expected, and is down from the 61.2 final print for January (and compares to 70.8 a year ago). All of the weakness was in the future outlook component. It declined to 49.1 from 57.8 previously (62.4 last February). The current conditions index rose to 67.1 versus 66.5 in January (83.8 last February). The 1-year ahead inflation index dropped to 1.6 after rising to 2.2% in January, and beats the prior low of 1.7% in December (it was 3.6% a year ago). The 5-year ahead inflation index rose to 3.0% after edging up to 2.9% in January and compares to a low of 2.6% in December (it was 3.0% a year ago).
Eurostat said euro-zone GDP contracted 1.5% on a quarter-to-quarter basis and fell 1.2% on an annualized basis, the biggest falls by both measures on record. In the third quarter, GDP shrank 0.2% on a quarterly basis, but grew 0.6% on a year-to-year basis. The fourth-quarter figures were even weaker than the market consensus estimate of a 1.3% quarterly drop and 1.2% decline on an annualized basis from a Dow Jones Newswires survey of economists last week. The Wall Street Journal said the data are likely to support expectations that the European Central Bank will cut its benchmark interest rate again in March. The ECB has lowered rates to 2.0% from 4.25% in October as weaker energy prices fueled a sharp slowdown in inflation in the region.
Among Friday's stocks in the news, Wells Fargo (WFC) said that due to credit events after its Jan. 28 announcement of year-end 2008 results and before filing its 2008 Annual Report on Form 10-K, it will record other-than-temporary impairment and take a non-cash charge of $328.4 million (pre-tax) in the 2008 fourth quarter for investments in certain perpetual preferred securities. Wells Fargo expects this charge will reduce full-year 2008 EPS to $0.70 from the $0.75 previously reported, with its fourth-quarter loss to increase to $0.84 from the previously reported $0.79 loss.
PepsiCo (PEP) posted $0.88 vs. $0.79 fourth-quarter core EPS on a 3.1% revenue rise. Due to uncertainties in the current macroeconomic environment, PepsiCo believes it is prudent to offer a much wider range in its guidance than it has in the past. The company therefore forecasts 2009 guidance for both net revenue, core EPS of mid- to high-single-digit growth on a constant currency basis. PepsiCo anticipates forex, at current spot rates, would adversely impact constant-currency core EPS by about 8 percentage points.
Wyndham Worldwide (WYN) posted a $7.63 fourth-quarter GAAP loss per share vs. $0.58 EPS on 12% lower revenue. On an adjusted basis, which excludes $1.4 billion of non-cash asset impairment charges and other items, the company posted $0.47 vs. $0.46 fourth-quarter EPS. The company sees $0.35-$0.40 first-quarter adjusted EPS. For full-year 2009, it sees adjusted EPS of $1.61-$1.85 on revenues of $3.5 billion-$3.9 billion.
Abercrombie & Fitch (ANF) posted $0.78 vs. $2.40 fourth-quarter GAAP EPS on 25% lower same-store sales and 19% lower total sales. The most recent quarter includes items. A&F says comparable-store sales and EPS, excluding items, exceeded the company's guidance. Due to the difficult selling environment, A&F says it is not providing EPS guidance for fiscal 2010.
Cheesecake Factory (CAKE) posted $0.15 vs. $0.19 fourth-quarter adjusted EPS on a 7.1% same-store sales decline and a 1.5% total revenue decline. The company expects to open one restaurant in the first quarter and as many as two additional restaurants during the remainder of the year. Piper Jaffray reportedly downgraded the shares to sell from neutral.