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Microsoft pummels Nasdaq
Tech-fueled index tumbles on software leader's weak and outlook; major stock gauges mixed on week, month.
By Alexandra Twin and Grace Wong, CNNMoney.com staff writers

NEW YORK (CNNMoney.com) - Microsoft's disappointing earnings and outlook cast a pall over the tech sector Friday, while the broader market managed to hold steady thanks to a strong read on economic growth and a surge in select stocks.

The Nasdaq closed lower on the week and the month as well. The Dow gained on the week and the month, while the S&P 500 gained on the month and was barely lower on the week.

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The Nasdaq composite (down 22.38 to 2,322.57, Charts) sank nearly 1 percent Friday, due to a selloff in software, chip and Internet shares. The Dow Jones industrial average (down 15.37 to 11,367.14, Charts) lost a few points, retreating from the six-year high it closed at Thursday. The broader Standard & Poor's 500 (up 0.89 to 1,310.61, Charts) index ended barely higher.

Both the Dow 30 and S&P 500 were protected from losses as severe as the Nasdaq's thanks to a rally in oil, gold and some financial stocks.

"Oil prices and commodities are up and weighing on the bigger caps, but the big story of the day is definitely Microsoft and that's weighing on techs," said Joseph Saluzzi, co-head of equity trading at Themis Trading.

The weakness in the tech bellwether overshadowed the strong reading on gross domestic product (GDP) growth in the first quarter.

Microsoft reported fiscal third-quarter earnings and sales late Thursday that missed forecasts and issued earnings guidance for the current quarter that was below analysts' projections.

Microsoft (down $3.10 to $24.15, Research) shares slumped 11.4 percent in heavy afternoon trading, weighing on the wide group of tech stocks that trade on the Nasdaq. Microsoft is also a Dow 30 component, but its impact on that gauge was limited by strength in other blue chips.

The oil and gold impact

U.S. light crude oil for June delivery added 91 cents to settle at $71.88 a barrel on the New York Mercantile Exchange. Crude lost about 5 percent this week from highs above $75 a barrel before rebounding Friday on the latest worries about Iran's nuclear capabilities.

Oil stocks rose in tandem, with the Philadelphia Oil Service (Charts) index adding 1.9 percent.

Treasury prices edged higher, lowering the yield on the benchmark 10-year note to 5.06 percent, from 5.07 percent late Thursday. Bond prices and yields move in opposite directions.

The dollar fell to an 11-month low versus the euro, giving a lift to dollar-traded commodities such as gold.

Gold jumped above $650 an ounce, on the mix of the weaker dollar and the Iran concerns. The COMEX futures contract for June delivery surging $18.20 to settle at $654.50 an ounce, a fresh 25-year high.

The rally in gold prices gave a lift to metal stocks. The Amex Gold Bugs (Charts) index jumped 4.8 percent, while the Philadelphia Gold and Silver (up 6.06 to 158.11, Charts) index gained 4 percent.

Silver jumped 8.3 percent, in response to the jump in gold and to the first day of trading for a new silver exchange-traded-fund (ETF) from Barclays Global Investors, the iShares Silver Trust (up $9.12 to $138.12, Research).

What moved?

Microsoft's weakness dragged on the broader software sectors, pushing down the Goldman Sachs Software (Charts) index by 1.4 percent.

Citigroup (up $1.80 to $49.95, Research) jumped 3.7 percent, helping the Dow fight off the impact from Microsoft, after brokerage Piper Jaffray upgraded the financial firm to "outperform" from "market perform."

Fellow Dow 30 financial company JP Morgan Chase (up $1.43 to $45.38, Research) rose 3.3 percent after Prudential lifted its 12-month price target on the company and reiterated its "overweight" rating. Prudential also boosted its rating on the broader bank industry to "neutral" from "unfavorable."

The Philadelphia Bank Sector (Charts) index added 1.9 percent.

Among other stock movers, Conexant Systems (down $0.33 to $3.54, Research) tumbled 8.5 percent in active Nasdaq trade. Late Thursday, the maker of chips for communication and networking gear reported improved quarterly earnings and revenue that beat forecasts. But investors saw a chance to take profits on the stock.

Market breadth was positive. On the New York Stock Exchange, winners beat losers three to two on volume of nearly 1.79 billion shares. On the Nasdaq composite, advancers topped decliners by a margin of eight to seven on volume of 2.63 billion shares; Microsoft accounted for roughly 25 percent of the Nasdaq volume.

Economy recovers

The economy bounced back in the first quarter after slumping at the end of last year, according to a Commerce Department report released Friday morning.

"People liked the GDP number this morning and there's still a leftover positive effect from Bernanke yesterday, but that's having less of an impact than Microsoft and the commodities," Saluzzi said, referring to gross domestic product, the broadest measure of the economy, which grew at the fastest pace in 2-1/2 years in the first quarter.

Stocks rallied for a second day running Thursday after Federal Reserve Chairman Ben Bernanke issued bullish comments to Congress on the economy, even amid surging oil prices. The Fed chief also hinted that a pause in the central bank's 22-month interest rate-hiking campaign may be near.

Gross domestic product (GDP) grew at a 4.8 percent annual rate in the first quarter after growing at a 1.7 percent rate in the fourth quarter. Economists surveyed by Briefing.com thought it would grow at a 4.9 percent annual rate.

The chain deflator - the report's main inflation indicator - grew at a 3.3 percent annual rate due to the impact of higher energy prices, topping economists' estimates.

But the so-called core deflator excluding food and energy grew at a tame 2 percent annual rate, down from a 2.4 percent in the fourth quarter. And the government's employment cost index rose 0.6 percent, below forecasts, suggesting that wage pressures remain moderate.

After the start of trading, separate reports were released on April consumer sentiment and April manufacturing growth in the midwest region. Both dipped from March readings and missed forecasts.

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