Stocks recovered steep losses to end mixed Friday as buyers emerged late in the day following a weak consumer sentiment report and a downbeat outlook for the wireless sector. News in the morning of a terrorist car bombing outside the U.S. consulate in Karachi, Pakistan added to the negative mood on the Street.
The Dow Jones industrial average fell 28.60 points, or 0.30%, to 9,474.21. Blue chips had been down as much as 240 points in early trading Friday.
The tech-heavy Nasdaq and the broader Standard & Poor's 500 index 500 retested the price ranges generated on Sept. 21, 2001, but then rose on short-covering and some bargain hunting. The Nasdaq composite index gained 7.88 points, or 0.53%, to 1,504.74, boosted by a rebound in biotech stocks. And the Standard & Poor's 500 index declined 2.29 points, or 0.23%, to 1,007.27.
Friday's impressive rebound in equities highlights that even with several negatives still hanging over the market, it doesn't take much to get a fairly sizable short-covering and bargain-hunting surge, says Rick MacDonald, senior economist for S&P MMS.
"The truth is that a lot of bad news is already priced in to the markets, as the sharp decline seen in stocks over the last few months has left valuations at much more attractive levels," wrote MacDonald in a report Friday.
Next week, there are a few economic reports to watch. On Monday, the only economic news will be the National Association of Home Builders' housing market index, which typically doesn't move the markets.
Tuesday brings the consumer price index, along with housing starts and building permits, for May. Thursday rounds the week with the latest reports on trade, leading indicators, and the Philadelphia Fed index of economic activity.
On Friday, so-called triple witching, or the expiration of options, could leave stock prices choppy, but there are no economic releases that day, notes S&P MMS.
On the earnings front, electronics retailers Best Buy (BBY) and Circuit City (CC), software maker Oracle (ORCL), and brokerage Lehman Brothers (LEH) are scheduled to issue quarterly reports on Tuesday. Later in the week, Bear Stearns (BSC), Morgan Stanley (MWD), and Goldman Sachs (GS) are set to report results.
News Friday morning of the car bombing, which left 11 people dead and at least 45 others injured, sent stocks reeling in the morning. The market has been very sensitive to terrorist threats, violence in the Middle East, and heightened tensions between India and Pakistan.
In economic news, the University of Michigan consumer sentiment index dropped to 90.8 in June from 96.9 in May. The report was much weaker than expected, as most economists expected the index to be 96.7. Both components of the report weakened: Present conditions plunged to 97.9 from 103.5, while expectations declined to 86.2 from 92.7.
This report came on the heels of Thursday's disappointing retail sales report, which indicates consumer spending is slowing down and raises questions about the strength of the economic recovery.
Two other economic reports didn't cause much of a ruckus. Industrial production for May at the country's factories rose 0.2%, while capacity utilization was flat at 75.5. Both numbers were in line with expectations. Separately, business inventories fell 0.2%, matching the consensus estimate.
More negative news on the earnings front made matters worse. The wireless sector was the big loser Friday after Sprint PCS (PCS) warned that 2002 net customer additions could be 10%-15% below its previous forecast of 3 million. Merrill Lynch lowered its rating on the wireless services industry to "reduce/sell," while JP Morgan downgraded Sprint PCS and other wireless names.
S&P also downgraded AT&T Wireless (AWE) to sell from avoid, and both Sprint PCS and US Cellular (USM) to avoid from hold. National carriers will continue to struggle as competitive pricing plans persist and considerable time is needed for 3G services to be accepted, S&P says.
The Sprint PCS news also hurt shares of wireless technology company Qualcomm (QCOM), which was downgraded by Deutsche Bank and S&P.
Another major wireless player came under pressure Friday. Shares of cell phone maker Motorola (MOT) headed lower after the company's debt was downgraded by Standard & Poor's.
Elsewhere in tech, software maker Adobe Systems (ADBE) started the negative news flow after the close Thursday when it reported second quarter EPS (GAAP basis) of $0.22 vs. $0.25 on 7.8% lower revenue. The company cut its guidance for the third quarter to EPS of $0.24 to $0.27, vs. the consensus estimate of $0.26, and revenue of $300 million to $320 million, lower than the consensus estimate of $324.8 million.
In the chip sector, Genesis Microchip (GNSS) slashed its first quarter revenue forecast to $41 million to $43 million from $60 million. The company cited a recent drop in orders and the loss of some designs to competitors.
Treasuries closed higher in price, sending yields to the lowest levels of the year, as investors sought safety amid the bombing in Pakistan and the drop in consumer sentiment. The 10-year note closed at a yield of 4.82% as stocks spent most of the day in the red.
With the June 25-26 FOMC meeting less than two weeks away, concerns about an aggressive Fed policy course have fallen by the wayside. In fact, the recent weakness in the stock market, pullback in economic data, strength in productivity, and the benign trends in inflation all make a strong argument for the Fed to keep interest rates steady through year-end, says Rick MacDonald, senior economist for S&P MMS. But many economists still expect the Fed to hike rates later this year.
European markets were tumbling as the Karachi car bombing raised terrorist attack fears and uncertainties about tensions between Pakistan and India. In London, the Financial Times-Stock Exchange 100 index ended with a loss of 141.10 points, or 2.96%, to 4,630.80. Traders ignored a report that UK unemployment fell to a 26-month low and average wages rose substantially in latest reporting period.
In France, the CAC 40 declined 114.26 points, or 2.89%, to 3,843.07. And in Germany, the DAX Index fell 166.29 points, or 3.72%, to 4,303.85.
In Asia, the markets finished lower. In Japan, the Nikkei fell 224.21 points, or 2.01%, to close at 10,920.63, a three and a half month low, on souring sentiment due to a continued slide in U.S. stocks and uncertainty over Japanese government policies shown in a second anti-deflation package released yesterday.
In Hong Kong, the market lost 163.81 points, or 1.47%, to close at 10,955.52.