The Dow Jones Industrial average lost 104.55 points, or 1.22%, to 8,433.85. The broader Standard & Poor's 500-stock index lost 12.08 points, or 1.34%, to 889.50. The tech-laden Nasdaq declined 36.92 points, or 2.64%, to 1,362.63.
On the heels of Thursday's bright retail sales numbers, the University of Michigan consumer sentiment index jumped to 87 in November from 84.2. But it didn't seem to matter.
A less favorable economic indicator dampened the strong consumer outlook: The producer price index, which measures prices paid to U.S. factories, farmers, and other producers, unexpectedly plunged 0.4% in November -- the largest decline in six months -- as costs declined for gasoline, computers and cars, a government report showed. "Did I hear someone say deflation?" remarked Trip Jones, senior vice president of Fulcrum Global Partners, in a note to clients.
The weak PPI was released just days after unemployment figures suggested that the job market is still shedding a high number of jobs. Weekly jobless claims spiked in the most recent data, and the national unemployment rate is now 6%. "The jobs picture is one of the broader issues that we're thinking about," says Alex Vallecillo, portfolio manager for the Armada Mid-Cap Growth Fund in Cleveland. "The employment market suddenly doesn't look as healthy as it needs to be."
The bigger lingering question in the market remains whether U.S. companies will soon begin spending again on capital investment. The Bank Credit Analyst, in its Friday economic report, said: "With cash flows improving, balance sheets being repaired and the return on investment still attractive, the odds are good that capital spending will surprise on the upside in the coming year."
Federal Reserve governor Mark Olsen, speaking from Santiago, Chile, said that weak recent data, including the bump in the unemployment rate to 6.0%, is no reason for the Fed to modify its policy stance or its view that the economy is in a "soft spot," MMS International said.
Still, not all signs point to a rebound. The dollar in currency trading earlier Friday plunged to its weakest level in almost three years against the euro and fell against the yen after the release of the drop in producer prices. The decline raised concerns that profit growth at U.S. companies will slow, but a weak dollar may help tech stocks, which derive much of their sales from international markets, says Alex Vallecillo at Armada Funds.
Few companies released earnings or hosted conference calls Friday. European publishing giant Pearson (PSO
) was down in trading after saying it doesn't yet see an upturn in the advertising market in 2003.
Two high-level executive changes were announced. Dow Chemical (DOW
) fired president and CEO Michael Parker, citing poor financial results, and named William Stavropoulos as his replacement at the largest U.S. chemical maker.
) said it would no longer issue short-term earnings guidance. CEO Douglas Daft says it wants to distance itself from the Wall Street focus on short-term bottom-line results, and hopefully get investors focused on its longer-term trend in earnings growth.
In news involving another well-known brand name, European spirits maker Diageo (DEO
) is selling Burger King for $1.5 billion to U.S. buyout firm Texas Pacific Group, Bain Capital Partners, and Goldman Sachs Capital. The sale price was reduced from about $2.25 billion, which Diageo had hoped to fetch for the burger chain earlier this year. Diageo shares gained 4%.
Adobe Systems (ADBE
) posted better-than-expected fourth-quarter results in what could be a lift to the tech sector. The software maker reported net income of $40.1 million, or 17 cents a share, up from $34.3 million, or 14 cents a share. Its pro forma net income was $59 million, or 25 cents a share, ahead of the forecast of 23 cents per share in a survey of analysts by Thomson First Call.
Also in tech, Electronic Data Systems (EDS
) moved up 57 cents to $19.45 once the tech firm said it signed a $4.5 billion, 10-year deal to provide voice and data network services to Bank of America.
Other tech stocks trading heavily include Micron Technology (MU
), which reports earnings next week. Analysts are looking for a loss of 20 cents a share. The shares are down 56% over the last year. And Computer Sciences (CSC
), the third-biggest U.S. computer-services company, agreed to buy privately-held DynCorp for about $950 million to expand the services it sells to the U.S. government to combat terrorism.
Next week, investors will have loads of economic data to consider. On Monday, builders' optimism about the new home market is expected to be reflected in the National Association of Home Builders' index, which should rise in November. The present conditions index is at its highest point in two years, Economy.com's Celia Chen points out. The Fed's 50 basis point rate cut is giving a boost to housing demand as the rate on adjustable rate mortgages declines. The index is expected to hit 65, up from 63 in October.
Tuesday brings more numbers. The latest chain-store sales snapshot should show 2.3% growth, while new residential construction should be 1.68 million units, up from 1.6 million in October. Retail electronics giants Circuit City (CC
) and Best Buy (BBY
) release earnings on Tuesday.
Economists expect industrial production, meanwhile, to remain unchanged in November after declining 0.8% in October, while the consumer price index (CPI) should exhibit 0.1% growth, from 0.3% in October. The core rate continues to trend within a fairly narrow range, advancing by 0.2% during the month and 2.2% on a year-ago basis. Energy, shelter and medical care inflation accelerated during the month.
Later in the week, investors will digest the Conference Board's Leading Economic Indicators, which are expected to climb 0.5%, and jobless claims, which economists hope will be 380,000, down from 441,000 Dec. 7. Final Gross Domestic Product will be released Friday, and is expected to be 4% in the third quarter, up from 1.3% in the second.
Treasuries were under pressure in early afternoon trading following a larger than expected jump in the Michigan sentiment index. But MMS notes that increased political turmoil in Venezuela and tensions with North Korea are providing mild support for Treasuries.
European stocks ended lower Friday. In London, the FTSE index fell 57.900 points, or 1.47%, to 3,877.40. Paris' CAC-40 index slipped 60.58, or 1.93%, to 3,076.85. In Frankfurt, the DAX index lost 29.44 points, or 0.95%, to 3,082.44.
In Asia, stocks also fell. Japan's Nikkei 225 index finished the day down 192.62 points, or 2.21%, to 8,516.07. In Hong Kong, the benchmark Hang Seng index fell 85.35 points, or 0.87%, to 9,728.43.