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NEW YORK (CNN/Money) -
Stocks slumped Friday, capping the worst week for the market in just over two years, on worries about a slowdown in the economy and how it could dent corporate profits.
IBM's earnings miss late Thursday and weak reads on manufacturing and consumer sentiment Friday morning highlighted the growing concern on Wall Street that the economy may be slowing down.
The Dow Jones industrial average (down 191.24 to 10,087.51, Charts), the world's most widely watched stock market gauge, sank nearly 1.9 percent, the worst percentage loss since March 31, 2003. The losses for the week were the worst since the week ended March 28th, 2003.
The broader Standard & Poor's 500 (down 19.43 to 1,142.62, Charts) lost 1.6 percent.
The tech heavy Nasdaq composite (down 38.56 to 1,908.15, Charts) skidded 2 percent, its biggest one-day slide on a percentage basis in more than four months.
Treasury bond prices rallied, sending yields lower in a flight-to-quality move. The dollar slumped versus other major currencies. Oil prices fell, but offered no respite for investors.
GE and Citigroup and a favorable ruling for the drug industry were among the few bright spots in a session that was resoundingly negative.
Three sharp days of declines sent the Dow 3.6 percent lower for the week, its worst weekly decline since late March 2003. For the week, the S&P 500 lost nearly 3.3 percent, and the Nasdaq lost nearly 4.6 percent.
"The market is behaving as is we are going into a recession," said Ram Kolluri, chief investment officer at Global Value Investors. "Retail sales were off and so the market is worrying that the consumer is tapped out. IBM's earnings were off and so we're worried that the earnings will slow."
The panicky selling and the flight into bonds reflect the worries that we are going to see headwinds in the economy from inflation, higher interest rates and oil prices, he added.
While stocks are probably headed for a few more tough sessions, he said that after the market eventually digests these worries and more earnings start coming in, equities should be able to stabilize.
IBM unnerves
The Dow, Nasdaq and S&P 500 all sank to five-month lows Thursday, falling on concerns the slowing economy would hurt corporate earnings. Friday's economic news, including a surprisingly weak read on manufacturing in the New York area, added to the worries.
After the close Thursday, IBM (down $6.94 to $76.70, Research) surprised investors by reporting quarterly earnings of 85 cents a share, short of estimates and down from a year earlier.
The stock sank more than 8 percent.
IBM's earnings miss had a substantial impact on the market, said Tom Schrader, managing director of U.S. equity trading at Legg Mason. But the session's declines also spoke to a broader issue, he added.
"The market has a negative tone to it right now," Schrader said.
"There's concerns that the economy is going to slow down -- the NY manufacturing number this morning certainly supports that, and the rise in bond prices supports that -- and you're seeing companies lowering their forecasts because of the expectation of a slowdown."
But other analysts saw brighter days ahead.
"The market is near a stage when even good news become bad news," said Peter Cardillo from S.W. Bach &Co. "But I think its probably nearing an end to this decline."
Friday earnings before the bell from fellow Dow components General Electric (up $0.25 to $35.75, Research) and Citigroup (up $0.35 to $45.75, Research) should have brought a glimmer of hope, but had little impact on Friday's trading.
GE earned 38 cents per share in the first quarter, up from 32 cents a year earlier and a penny more than expected, according to economists surveyed by First Call.
Citigroup (up $0.35 to $45.75, Research) reported earnings of $1.04 a share, 2 cents more than expected and up from 98 cents a year earlier. The No. 1 financial services company said its board had approved the buyback of up to an additional $15 billion of common stock, on top of $1.3 billion left from a previous program.
GE and Citigroup stock each rose less than 1 percent, having little impact on the Dow 30.
Also helping to stem a further slide were drug stocks, which benefited from a ruling Thursday upholding a patent on Eli Lilly's best selling drug Zyprexa, used to treat schizophrenia.
The move was seen as a blow to generics and helped lift the whole sector. Lilly (Research) led the way, jumping almost 8 percent, while Merck & Co. (Research), Pfizer Inc. (Research) and GlaxoSmithKline (Research) all rose over 1 percent.
Other movers
Among other stocks moving on earnings news, Sun Microsystems (down $0.30 to $3.66, Research) fell 7.6 percent in active Nasdaq trade after reporting a loss of 2 cents per share. That was narrower than the 8-cent per share loss it posted a year ago, but was worse than the break-even results analysts were expecting.
A variety of other tech and telecom shares fell.
Networking stocks were weak across the board, with Juniper Networks (down $0.97 to $19.75, Research) and Emulex (down $1.34 to $15.86, Research) both falling in active trading. The Amex Networking (down 7.64 to 187.98, Charts) index tumbled almost 4 percent.
In addition, the influential chip sector was weak, with Intel (down $0.37 to $22.12, Research) and Applied Materials (down $0.76 to $14.50, Research) both falling. The Philadelphia Semiconductor (down 13.07 to 382.64, Charts) index, or the SOX, fell 3.3 percent.
In other sectors, oil stocks fell, along with the commodity, which has shed more than $8 over the last ten days. The Amex Oil (down 26.36 to 802.53, Charts) index lost 3.2 percent.
Market breadth was negative and volume was heavy. On the New York Stock Exchange, losers beat winners by more than three to one on volume of 2.17 billion shares. On the Nasdaq, decliners topped advancers by the same margin on volume of 2.35 billion shares.
Mixed economic news
The New York Empire State index, a measure of manufacturing in the New York area, fell to 3.1 in April from an upwardly revised read of 20.2 in March. Economists surveyed by Briefing.com expected it to fall to 18.
Industrial production rose 0.3 percent in March, in line with estimates, after rising a revised 0.2 percent in the previous month.
And the University of Michigan preliminary reading on consumer sentiment index for April fell to 88.7 from 92.6 in March, according to Reuters. The forecast was for a decline to 91.5.
U.S. light crude oil for May delivery fell 64 cents to settle at $50.49 a barrel on the New York Mercantile Exchange.
Treasury prices rallied, sending the 10-year note yield down to 4.23 percent from 4.32 percent late Thursday as nervous stock investors looked for other places to put their money. Bond prices and yields move in opposite directions.
In currency trading, the dollar tumbled versus the euro and the yen.
COMEX gold rose 90 cents to settle at $426.50 an ounce.
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