NEW YORK (CNN/Money) -
The major stock indexes closed lower Friday, although off their worst levels of the session, as late afternoon comments from Fed Chairman Alan Greenspan about the labor market helped dilute earlier reports that sparked inflationary fears.
Terrorism fears, revived after Japan raised its terror alert level, also seemed to abate some by the close. However, the market was unable to break out of the red on the session or on the week.
The Nasdaq composite (down 8.03 to 2037.93, Charts) lost 0.4 percent, the Dow Jones industrial average (down 45.70 to 10619.03, Charts) lost 0.4 percent and the Standard & Poor's 500 (down 2.95 to 1144.11, Charts) index lost 0.25 percent.
For the week, the Nasdaq lost 0.76 percent, the Dow industrials lost 0.1 percent and the S&P 500 closed just below where it did last Friday. Markets were closed Monday for the President's Day holiday.
Stocks had started the day in mixed territory, but quickly turned lower, following news that Japan has tightened security substantially. Some reports said Japan has moved to its highest terror alert level, due to two explosions this week near the Defense Ministry in Tokyo. Worries about inflation also added to the selloff, due to comments from Federal Reserve Bank of St. Louis President William Poole and the morning's CPI report.
But Greenspan's early afternoon comments that the labor market is improving and should continue to do so this year seemed to water down the earlier fears, and stocks recovered some of their losses by the close.
"What's happening today is very telling of where the market is right now," said Peter Green, a market analyst at MKM Partners. "Typically, when there is negative news people tend to make 'flight-to-safety' moves into bonds and gold, but that isn't happening. That tells me that asset classes in the near term are very tired, and that we could see more of a pull back from here over the next few months."
Although the market as a whole was under pressure, the Nasdaq composite and technology in particular, paced the decline.
Green said that the Nasdaq is continuing to lag because it was the bull market leader from March of 2003 through December of last year. After the mild selloff in late January or this year, it has been unable to rally back as strongly.
No economic reports are due Monday. Most of the quarterly earnings reports have already been released, but a number are still expected next week. Monday's reports include Concord EFS (CE: down $0.24 to $14.22, Research, Estimates) and Campbell Soup (CPB: up $0.20 to $28.20, Research, Estimates) before the open.
On the move
With expectations for corporate earnings so high, Wall Street showed disappointment at Hewlett-Packard (HPQ: down $0.73 to $23.13, Research, Estimates)'s mostly upbeat quarterly report. After the close Thursday, the technology bellwether reported fiscal first-quarter earnings of 35 cents per share, in line with estimates and up from a year earlier. The company also raised its sales guidance for the fiscal second-quarter and issued an earnings-per-share guidance that is in line with estimates. Shares fell more than 3 percent.
Among the other big Dow decliners, Alcoa (AA: down $0.91 to $36.83, Research, Estimates) lost 2.4 percent after selling off its automotive fastener business as part of a previously announced plan to sell off non-core businesses. Caterpillar (CAT: down $1.71 to $76.82, Research, Estimates) and General Motors (GM: down $1.09 to $48.51, Research, Estimates) also both lost more than 2 percent.
The report from BEA Systems (BEAS: up $1.08 to $14.01, Research, Estimates) was greeted with a bit more enthusiasm. The business software maker reported quarterly results that grew from a year earlier and topped estimates, as a result of strong sales of its software that's used for the Internet. BEA also issued a revenue guidance for the current quarter that is above what analysts are currently expecting. Shares gained 8.3 percent in active Nasdaq trade.
Typical of the session's declines, Applied Materials (AMAT: down $0.38 to $21.75, Research, Estimates) sold off, even after issuing a mostly positive earnings report late Wednesday.
A variety of other technology shares declined, as well, including Cisco Systems (CSCO: down $0.49 to $23.19, Research, Estimates), which lost 2 percent and topped the Nasdaq's most-actives list.
Consumer prices in January rose 0.5 percent, after rising 0.2 percent in December. Economists surveyed by Briefing.com, on average, thought CPI would rise to 0.3 percent. The "core" CPI, which excludes volatile food and energy prices, rose 0.2 percent after rising 0.1 percent in December. Economists expected it to rise 0.1 percent.
While the report could be seen in some ways as bullish for the economic recovery, it may have made investors a little nervous that if inflation is growing, the Federal Reserve could be more likely to raise interest rates sooner, rather than later.
Such fears were exacerbated by late morning comments from St. Louis Fed President William Poole, who said that in terms of U.S. inflation and interest rates, he saw more risks for a surprise on the upside than the downside.
Market breadth was decidedly negative. Losers beat winners by five to three on the New York Stock Exchange, where 1.45 billion shares changed hands. On the Nasdaq, volume was 1.88 billion shares, while decliners topped advancers by more than three to two.
News of the terror alert level sent the dollar up versus the yen, and the U.S. currency also gained sharply against the euro. As is typical when the dollar gains, the price of gold tanked. COMEX gold lost $12.30 to settle at $398 per ounce.
Treasury bond prices declined, with the 10-year note losing 16/32 of a point, pushing its yield up to 4.09 percent from 4.04 percent late Thursday. Bond prices and yields move in opposite directions.
Among commodities markets, NYMEX light sweet crude oil prices fell 38 cents to settle at $34.26 per barrel.
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