Disastrous Dow tumbles again
Wall Street caps another tough week. Dow falls to 10-month low. Nasdaq sinks to lowest point in over a year. Upbeat earnings and fiscal stimulus plan fail to soothe investors.
NEW YORK (CNNMoney.com) -- Stocks slipped Friday, ending a tough week on a down note as investors mulled upbeat earnings from GE and IBM and President Bush's proposed fiscal stimulus plan, but remained wary about the outlook for the economy.
The Dow Jones industrial average (INDU) lost 0.5 percent and ended at a fresh 10-month low. The broader S&P 500 (INX) index lost 0.6 percent and ended at a 15-month low. The Nasdaq composite lost 0.3 percent and ended at a 14-month low.
The Russell 2000 (RUT.X) small-cap index fell 1.1 percent and closed at an 18-month low. The Russell is now down more than 20 percent from its all-time high hit last July, the technical definition of a bear market.
Treasury prices were little changed and the dollar was mixed versus other major currencies.
Stocks tumbled on Thursday, extending the 2008 selloff on recession worries after comments from Federal Reserve Chairman Ben Bernanke, a big quarterly loss from Merrill Lynch and weak readings on housing and manufacturing.
Following the big decline - in which the Dow lost 307 points - stocks initially bounced back Friday morning. But the gains proved short-lived as the financial sector again tumbled and investors shrugged off the Bush Administration's proposed fiscal stimulus plan.
Bush acknowledged that there are "areas of real concern" in the economy and urged Congress to pass a fiscal stimulus package quickly. He said it should be quick and temporary, include tax incentives for small businesses and tax relief for Americans that should be equivalent to about 1 percent of GDP, or about $140 billion to $150 billion.
Speaking after the president, Treasury Secretary Henry Paulson said that the Bush administration estimates that the stimulus package would mean around half a million new jobs being created. (Full story).
The plan offered few surprises, and was in tune with Thursday's comments from Fed Chief Ben Bernanke that a quick and temporary stimulus plan was needed.
While relief in the form of both fiscal and monetary policy would be a positive, the details of any package and the extent of future rate cuts remain unknown, and therefore Bush's speech did not seem to reassure markets on Friday.
For the market to really break out of the recent downtrend, investors would need to see "more aggressive easing from the Fed and other central banks around the world or a more aggressive stimulus plan than what people are expecting," said Douglas Peta, market strategist at J. & W. Seligman.
"It's not going to help if the market just shrugs about the next Fed move or the eventual stimulus plan like the Super SIV plan or the Treasury Department's plan to help stressed subprime borrowers," he said, referring to plans announced in fall 2007 that didn't end up having a big impact on stock markets.
Stocks have tumbled so far this year on worries about the threat of recession, with investment banks, mortgage lenders, home builders, retailers and other areas of the market affected by the collapsing housing and credit markets.
Year-to-date as of Friday's close, the Dow is down 8.8 percent, the S&P 500 is down 9.7 percent and the Nasdaq has lost 11.8 percent.
In the very short term, "you'll probably see a stabilizing in the market because it moved too quickly on the downside," said Thomas Nyheim, portfolio manager at Christiana Bank & Trust Company. Yet beyond the short term, the market is unlikely to make a big move in either direction until later in the year, he said.
In corporate news, General Electric (GE, Fortune 500) reported higher quarterly earnings that met estimates on higher revenue that topped estimates, due to strong global demand. The diversified company also reiterated that fiscal 2008 results would meet forecasts. Shares rose 3.3 percent.
After the close Thursday, IBM (IBM, Fortune 500) reported higher quarterly sales and earnings that topped estimates. The company also issued 2008 earnings guidance that is above analysts' current estimates. Shares gained 2.3 percent Friday.
On the downside, the financial sector was dealt more bad news Friday.
Fannie Mae (FNM) tumbled on a Morgan Stanley downgrade, Briefing.com reported.
Bond insurers had another down session after MBIA (MBI) said that its credit rating was put under review for a possible downgrade at Moody's Investor Services yesterday and Fitch said it was cutting the credit rating of Ambac Financial (ABK). Ambac shares tanked more than 50 percent Thursday after saying its credit rating was put under review by Moody's as well.
AP reported that Bank of America downgraded MBIA, Ambac and Security Capital Assurance (SCA) to "neutral" from "buy."
Citi Investment also downgraded MBIA and Ambac.
Late Thursday, Washington Mutual (WM, Fortune 500) reported a wider quarterly loss that missed estimates, due in part to the weakening value of its mortgage portfolio. Separately, the company said it is being sued for appraisal fraud. Regardless of the bad news, the stock rose nearly 9 percent Friday.
Market breadth was negative. On the New York Stock Exchange, losers beat winners 5 to 3 on volume of 2.46 billion shares. On the Nasdaq, decliners topped advancers 3 to 2 on volume of 2.99 billion shares.
In economic news, the University of Michigan's January consumer sentiment index rose to 80.5 versus forecasts for a drop to 74.5. Sentiment stood at 75.5 in late December.
Separately, the index of leading economic indicators (LEI) fell 0.2 percent in December after falling 0.4 percent in November. Economists thought it would fall 0.1 percent.
Treasury prices were little changed, with the yield on the 10-year note at 3.65 percent, roughly where it stood late Thursday. Treasury prices and yields move in opposite directions.
In currency trading, the dollar gained versus the euro and was weaker against the yen.
U.S. light crude oil for February delivery rose 44 cents to settle at $90.57 a barrel on the New York Mercantile Exchange.
COMEX gold for February delivery rose $1.20 to settle at $881.70 an ounce.