Blue-chip stocks finished Friday with gains as cyclical stocks rose on speculation that the Bush Administration may help put a limit on companies' asbestos liabilities. Meanwhile, technology stocks ended lower in narrow-range trading.
On Friday, the Dow Jones industrial average ended up 44.01 points, or 0.45%, to 9,840.08. The Nasdaq Composite index fell 4.88 points, or 0.25%, to 1,937.70. The broader Standard & Poor's 500 index finished up 1.13 points, or 0.10%, to 1,133.28.
Next week, investors will be waiting to hear the decision by the Federal Reserve's rate-setting arm on interest rates. The FOMC is scheduled to meet on Jan. 30 and 31. The Fed is now expected to leave interest rates on hold on Wednesday, while keeping the door open to further cuts if they become necessary, says Standard & Poor's MMS.
Some economic data could help support the case for a recovery. The ISM (formerly NAPM) index for January, slated for release on Friday, is expected to come in above the 50 boom-bust mark. The gauge has never failed to sign a sustained recovery in the economy. Also on Friday, investors will mull the employment report for January. Consensus forecasts are for a small 50,000 drop, which should not impact hopes for a rebound.
First-quarter earnings season continues, with a number of big-name companies set to release results. Expected Monday are reports from American Express (AXP) and Texas Instruments (TXN). Tuesday should bring news from Coca-Cola Co. (KO), Honeywell (HON), and FleetBoston (FBF). On Wednesday, the big releases include AOL Time Warner (AOL) and Philip Morris (MO). Slated for Thursday: Procter & Gamble (PG) and Verizon (VZ).
Another closely-watched event will be President Bush's State of the Union address Monday. There has been speculation that Bush will express support for a cap on asbestos liability. Many of the country's biggest companies have seen their stocks crumble on worry that class-action suits involving asbestos claims could cause bankruptcies.
And it was rumors of White House action that boosted the stocks of some companies that have exposure to asbestos liability on Friday. Dow industrials components Minnesota Mining & Manufacturing (MMM) and Dow Chemical (DOW) benefited from speculation of possible limits to asbestos liability.
Earlier in Friday's session Compaq's (CPQ) improved earnings outlook for fiscal 2002 lifted techs. Compaq raised its earnings projection to $0.32 per share for the fiscal year, well above analysts' current consensus estimate of $0.25 per share. The better forecast helped pull the tech-heavy Nasdaq composite index out of the loss column for a brief period.
In the end, the market sold tech stocks on disappointing news from industry leaders such as JDS Uniphase (JDSU) and PC maker Gateway Inc. (GTW).
Fiber-optics equipment maker JDS Uniphase said it may not hit a bottom in sales by March. The company reported second-quarter revenues that matched its forecasts, but investors were not happy with its comments.
Gateway posted an operating profit that matched its earlier guidance, but said its sales slid. The company also announced another round of layoffs -- about 16% of its work force.
In general, stocks have been volatile so far this year as nervous investors take profits on any run-up in the market. The health of corporate profits and the economy's ability to rebound remain in question.
Treasuries came off the worst levels of the session, but finished down in price, amid reports that the market will be faced with more supply. S&P MMS noted rumors circulating that the Treasury Dept. plans to begin selling 5-year notes on a monthly basis. Traders were mainly squaring positions ahead of next week's FOMC meeting.
On the data front, existing home sales slipped 0.8% in December to a 5.19 million unit annual pace from a 5.21 million rate after mortgage rates bottomed in November, beating S&P MMS expectations that sales would slip 1.5% in December to a 5.10 million unit pace. Unseasonably warm weather helped sales in the East.
Overall, with mortgage rates just above historically low levels and the healthy pace of permits, there is little reason to expect any protracted weakness in housing despite the recession, MMS says. For all of 2001 sales hit a record 5.251 million units, which indicates the central role the housing sector has played in cushioning the economy.
European markets finished Friday's session with losses after disappointing earnings from U.S. tech companies. In London, the Financial Times-Stock Exchange 100 index dropped 40.10 points, or 0.77%, to 5,193.00. In France, the Paris CAC 40 lost 23.76 points, or 0.53%, to 4,484.31. Germany's DAX index ended down 13.81 points, or 0.27%, to 5,156.63.
Asian markets ended higher Thursday. Japan's Nikkei 225 index added 70.09 points, or 0.70% to 10,144.14. Hong Kong's Hang Seng index added 31.50 points, or 0.29%, to 10,772.96.