NEW YORK (CNN/Money) -
Wall Street ended an up week on a down note Friday, as profit taking undid some of the impressive gains achieved earlier in the week. Despite the bright start to September, next week could see more selling.
Stocks have rallied over the last few weeks as a series of mostly upbeat economic reports and a slew of bullish analyst calls, most notably on the technology sector, gave investors reasons to buy. Thursday's rally pushed the Dow and the S&P 500 to new almost 15-month highs, and the Nasdaq to a new 17-month high.
But with Friday's only economic report a negative one and with tech investors wanting to take some profits after the run, sellers took control. In addition to the weak jobs report, stocks were pressured Friday by a falling U.S. dollar and higher Treasury and gold prices
The Dow Jones industrial average (down 84.56 to 9503.34, Charts) fell about 0.9 percent Friday, while the Standard & Poor's 500 (down 6.58 to 1021.39, Charts) index and the Nasdaq composite (down 10.73 to 1858.24, Charts) both lost around 0.6 percent.
However, the four-session week -- shortened due to Monday's Labor Day holiday -- was a positive one, with the Dow closing higher for the eighth week out of nine, while the Nasdaq and the S&P 500 both closed up for the third consecutive week. For the week, the Dow closed up 0.9 percent, the Nasdaq 2.6 percent and the S&P 500 1.3 percent.
All in all, it was a good start for September, analysts said, considering the month's reputation as a rally killer. For the last 31 years, since the start of Nasdaq trading in 1971, September has been the worst month for all three indexes, according to the Hirsch Organization, publishers of the Stock Trader's Almanac.
However, whether next week can continue to defy the negative trend is doubtful.
"Every indicator I look at shows that we're just really overbought right now," said Tom Schrader, head of listed trading at Legg Mason. "I would look for the indexes to suffer some more profit taking over the next few weeks."
Few market-moving earnings reports or economic data are due early next week, which could set stocks up for continued profit taking. But next Thursday and Friday are fairly news heavy. On Thursday, reports are due on the trade balance and weekly jobless claims, and Friday brings reports on producer prices and retail sales for August, as well as the initial September reading on consumer sentiment from the University of Michigan.
Adobe Systems (ADBE: down $0.85 to $37.91, Research, Estimates) reports its quarterly earnings after the close of trade Wednesday, and Oracle (ORCL: down $0.64 to $13.08, Research, Estimates) reports its earnings before the bell Friday. Both firms are expected to post modestly higher earnings than a year earlier.
Stocks spent the morning in mixed trade before abruptly dropping in the early afternoon. Trading floor talk suggested the culprit was asset reallocation from stocks to bonds, a trading error, or a major brokerage house aggressively selling futures. Light volume and the desire to cash out of technology and other sectors that had fueled the rally was another likely cause of the selloff.
Released before the market opened, the August jobs report showed that the unemployment rate dropped to 6.1 percent from 6.2 percent in July, better than the unchanged reading that economists had expected. However, employers cut 93,000 jobs from their payrolls last month, after cutting 49,000 in July. This was quite a surprise to economists, who had expected employers to add 12,000 jobs, according to a Reuters survey.
Although it is widely known that the labor market is still struggling, the report fell on the heels of Thursday's weekly jobless claims number, which also showed a worse-than-expected rise in unemployment. The two reports combined served to exacerbate fears that the labor market will continue to drag its feet despite other signs that the economy is recovering.
Positive technology news continued to surface, but after driving the rally for the last two weeks, tech investors were tuckered out.
In its mid-quarter update issued after the bell Thursday, Intel (INTC: up $0.11 to $28.71, Research, Estimates) narrowed its revenue forecast to a range of $7.6 billion to $7.8 billion, the upper end of its previous range, thanks to better demand for the processors used in desktop and notebook computers.
On Friday, Morgan Stanley raised its 2003 and 2004 revenue and earnings-per-share expectations on the company and Bear Stearns raised Intel's year-end price target and 2004 earnings-per-share forecast. Shares closed virtually unchanged.
Late Thursday, PeopleSoft (PSFT: down $0.05 to $19.30, Research, Estimates) said its recent purchase of fellow business software maker J.D. Edwards would produce bigger cost savings than it had originally thought. The company, which is trying to shrug off a hostile takeover bid from Oracle, also issued new forecasts for fiscal 2003 and 2004 that include the impact of J.D. Edwards. On Friday, Deutsche Bank Securities upgraded the stock to "buy" from "hold." But shares close almost unchanged.
However, the development pressured Oracle (ORCL: down $0.64 to $13.08, Research, Estimates), which recently upped its offer price for PeopleSoft as part of its ongoing hostile bid for the company. Oracle shares lost 4.7 percent and the stock was the Nasdaq's most-actively traded. Sector mate BEA Systems (BEAS: down $0.42 to $14.35, Research, Estimates) lost 2.8 percent after Smith Barney downgraded the stock to "in line" from "outperform," saying that after the stock's recent rise, it has gotten expensive.
On the upside: shares of National Semiconductor (NSM: up $1.33 to $33.32, Research, Estimates), which rose 4.1 percent, adding to its gains of 11 percent Thursday. During Thursday's session, the chipmaker issued a much stronger-than-expected earnings report. On Friday, DB Securities upgraded the stock to "hold" from "sell."
On other sectors, Wal-Mart Stores (WMT: down $1.19 to $58.89, Research, Estimates) closed nearly 2 percent lower after Banc of America cut its investment rating on the Dow component to "neutral" from "buy," saying the stock is nearing the firm's price target.
Shares of Dow stock Boeing (BA: down $0.73 to $37.16, Research, Estimates) fell 1.9 percent after the aerospace maker lost out to a European rival on a $1.46 billion deal to build Army helicopters for Spain.
Treasury prices rallied Friday, sending the 10-year note yield down to 4.38 percent from 4.50 percent late Thursday as it added 1-3/32 points in price. The dollar fell sharply versus the euro and was flat versus the yen.
COMEX gold settled at $378.70 an ounce, down $4.70. NYMEX crude oil futures settled at $28.88 a barrel in New York, down 10 cents.
Market breadth was negative, with decliners edging advancers by eight to seven on both the Nasdaq and the New York Stock Exchange. Some 1.43 billion shares traded on the Nasdaq and 1.92 billion shares changed hands on the NYSE.