NEW YORK (CNN/Money) - U.S. stocks retreated Friday as a sharp rise in the November unemployment rate seemed to give weight to concerns that the recent run-up in equity markets has outpaced the reality of the nation's economic situation.|
The Nasdaq composite fell 33.01 points to 2,021.26, but gained 90 points, or 4.7 percent, on the week overall. The Dow Jones industrial average lost 49.68 to 10,049.46, but gained almost 198 points, or 2 percent, on the week. The Standard & Poor's 500 gave back 8.79 to 1,158.31, but closed the week up almost 18 points, or 1.65 percent.
The U.S. unemployment rate rose to 5.7 percent in November, surpassing the estimates of economists, who were looking for a rise to 5.6 percent from October's 5.4 percent rate. The upsurge reflects the hundreds of thousands of jobs employers have been cutting in response to the recession.
In corporate news, chip leaders Intel (INTC: down $0.92 to $33.24, Research, Estimates) and Advanced Micro Devices (AMD: up $1.60 to $17.85, Research, Estimates) said late Thursday that fourth-quarter sales will be stronger than had been expected.
Sun Microsystems (SUNW: down $0.76 to $13.39, Research, Estimates), a maker of Unix servers, said orders were tracking within its internal estimates for the fiscal second quarter, although the company failed to provide specifics.
Treasury prices sank, with the 10-year note losing a full point, pushing its yield up to 5.15 percent from 4.99 percent late Thursday. The 30-year bond dropped nearly 2 points, pushing its yield up to 5.59 percent from 5.46 percent late Thursday.
Asian markets closed mostly higher, with the exception of the Japanese Nikkei, which fell on recession concerns. In Europe, markets closed lower, with energy stocks leading the decliners.
The dollar gained against both the yen and the euro. In New York, light crude oil futures rose 50 cents to $19.04 a barrel.
Market breadth was negative. On the New York Stock Exchange, decliners beat advancers by an 8-to-7 margin as 1.22 billion shares changed hands. On the Nasdaq, losers trumped winners 6-to-5 as 1.89 billion shares traded.
Job data are lagging indicator
Although the unemployment number took Wall St. by surprise, unemployment is a lagging indicator and some economists say it doesn't indicate an economic recovery is not in the pipeline for 2002.
"When the economy recovers, the last place you are going to see it is in the job numbers," James Glassman, senior U.S. economist for J.P. Morgan, told CNNfn's Market Call.
The competing influences of the forward-looking stock market and backwards-looking economic indicators is a staple of market action, but the tug-of-war has come more into focus over the past week as the year winds down.
While it's no longer news that the economy is in a recession, investors and market professionals alike still are struggling to figure out when the economic recovery is most likely to begin, and how to adjust their portfolios and financial plans accordingly.
In other economic news, the University of Michigan's consumer sentiment index rose to 85.8 in the initial reading for December, from a final November reading of 83.9. Economists surveyed by Briefing.com expected the index to rise only to 84.5.
Though largely ignored by equity indexes, the sentiment number may have been the final straw for watchers of the long-term bond market, which sold off sharply.
With the exception of Friday's jobs number, most economic indicators in the past week or more have been strong, said Mike Ryan, senior bond analyst at PaineWebber.
The sentiment numbers confirmed this, sending investors out of the bond market overall, but particularly in longer-term notes, which won't benefit from an expected 25-basis-point Federal Reserve interest-rate cut when the open market committee meets next week.
However, "People are pulling out on thin volume and not necessarily putting it into stocks. Investors have moved to the sidelines," Ryan said.
Friday marked the 60th anniversary of the attack on Pearl Harbor, a date that is particularly salient in light of the retaliatory war against terrorist forces in Afghanistan. In the latest developments, the Taliban lost their last major stronghold in the country as Kandahar fell and opposition forces began entering the city, interim Afghan leader Hamid Karzai said.
Intel, AMD, among most actives
Semiconductor and Internet names were mostly higher, while biotechs and networking issues pulled back.
No. 1 chipmaker Intel (INTC: down $0.92 to $33.24, Research, Estimates) said it sees fourth-quarter sales of $6.7 billion to $6.9 billion, a rise from its previous forecast of $6.2 billion to $6.8 billion, although about 20 percent down from a year ago. Intel rival Advanced Micro Devices (AMD: up $1.60 to $17.85, Research, Estimates) cited strong sales of its Athlon microprocessor in raising its outlook.
The forecast by Sun Microsystems (SUNW: down $0.76 to $13.39, Research, Estimates) was seen as being not specific enough, some analysts said. The company said it saw signs of stabilization but declined to give specific targets.
Sun, as well as Apple Computer (AAPL: down $0.24 to $22.54, Research, Estimates) and others, could benefit if restrictions on Microsoft (MSFT: down $0.82 to $67.83, Research, Estimates) that some states are pushing are accepted by a federal judge, a published report said.
CIBC World Markets downgraded chip names Integrated Device Technology (IDTI: down $5.33 to $25.75, Research, Estimates), Applied Micro Circuits (AMCC: down $1.17 to $13.52, Research, Estimates) and PMC-Sierra (PMCS: down $1.88 to $27.36, Research, Estimates).
J.P. Morgan cut fourth-quarter 2001 and full-year 2002 revenue and earnings-per-share estimates on business software maker Siebel Systems (SEBL: down $1.25 to $24.02, Research, Estimates), saying the near-term environment is poor.
UBS Warburg cut 2001, 2002 and 2003 revenue and earnings-per-share estimates on broadband communications product maker Centillium (CTLM: down $1.07 to $8.85, Research, Estimates), saying the company is experiencing a continued inventory problem in Japan.
Pacific Crest, among other, said rumors are getting louder that communications equipment and software maker Sonus Networks (SONS: up $0.80 to $6.98, Research, Estimates) will be part of a $4.1 billion Sprint (FON: down $0.67 to $19.84, Research, Estimates) deal.
Outside the tech sector, Coldwater Creek (CWTR: down $9.19 to $17.71, Research, Estimates), a women's apparel company, said earnings in its fiscal third and fourth quarters would fall sharply from the same periods in the previous year due to poor catalog sales.
A number of brokerage firms downgraded or issued negative comments on oil services company Halliburton (HAL: down $8.85 to $12.00, Research, Estimates) after a jury in Baltimore Friday awarded $30 million in damages against its Dresser Industries subsidiary in a case involving asbestos claims. Analysts say there are many outstanding lawsuits that could result in massive liabilities.
On a positive note, online investment company E-Trade Group (ET: up $0.66 to $10.46, Research, Estimates) gave upside guidance, saying it sees 2002 operating earnings of 40 cents to 50 cents per share when analysts expect earnings of 34 cents per share. Sector mate Instinet (INET: up $0.03 to $8.03, Research, Estimates) rose in tandem.
A number of financial, brokerage and other market-related stocks have been on the rise in the past week, amid an overall strengthening in the Nasdaq, which can tend to bolster market and trading related stocks. However, online brokerage houses have been an exception to this trend prior to today.