Stocks Friday were headed for a lower open on the heels of disappointing comments on future performance from the likes of Sun Microsystems (SUNW) and Microsoft (MSFT). Major stock index futures moved lower ahead of the opening bell.
On Thursday, the Dow Jones industrial average, which was on positive ground for much of the session, tumbled 132.99 points, or 1.56%, to 8,409.49. The tech-heavy Nasdaq composite index, meanwhile, added to the loss column, with a decline of 40.29 points, or 2.88%, to 1,356.96, led by losses in brand-name biotech, telecom and software stocks. The broader Standard & Poor's 500-stock index was down 24.48 points, or 2.70%, to 881.56.
The pace of Friday's session will be set by reaction to the latest pile of tech earnings. Sun Microsystems after the closing bell Thursday reported fiscal fourth-quarter revenues of $3.4 billion, up 10% from third-quarter levels. Net income for the fourth quarter was $28 million. The company warned of weakness on the current quarter.
Microsoft, the world's No. 1 software concern, said sales grew 10% in its fourth quarter, but losses on cable investments hurt earnings and the firm lowered its profit and sales outlook for the current year. Pressure on Microsoft shares will hurt the Dow index's performance.
eBay (EBAY), the top Internet auction site, provided a modest upgrad to its financial outlook. Meanwhile, it said second-quarter earnings more than doubled from last year.
Xilinx (XLNX), a chipmaker, posted revenue that
was less than analysts predicted. Xilinx said it had revenue rose slightly to $289.9 million but analysts expected $295.5 million.
Another Dow company in the news, Johnson & Johnson (JNJ) saw its shares stumble after a New York Times story that the company is under criminal investigation of a factory in Puerto Rico that makes its anemia drug Eprex. There have been reports of side effects in Europe and Canada in patients who took the drug.
Investors will also have to contend with the rebalancing of the broadly followed Standard & Poor's 500 index of stocks. The rebalance will take effect at the close of business Friday. Non-U.S. stocks will be deleted for 7 domestic ones. While the majority of index funds are expected to wait until Friday to rebalance, arbitrage and hedge funds have likely acted sooner. The last time the S&P index was rebalanced was 1983, when seven Baby Bells were added. The rebalancing is likely to cause extra volatility in Friday's session.
Treasuries moved higher as stocks weakened overnight.
The latest update on consumer price index and the core index, which strips out more volatile components, both rose 0.1%, which is in line with expectation. The data, which gauges inflation at the consumer level, suggest that inflation remains subdued. The CPI update should help the bond, but longer dated issues may not be able to move much higher given current levels and bearish implications of trade data on the already beleaguered dollar, says Standard & Poor's economic research unit MMS.
In other data, the U.S. trade deficit hit a record $37.64 billion in May from an upwardly revised deficit of $36.14 billion in April. Exports gained slightly, while imports surged. The data may worry the dollar and stocks slightly, but should not have much effect on bonds, says MMS.
European stock markets tumbled amid disappointing earnings outlooks in the U.S. that renew concerns about the economic recovery. In London, the Financial Times-Stock Exchange 100 index lost 148.70 points, or 3.46%, to 4,148.60. France's CAC 40 shed 131.25 points, or 3.74%, to 3,382.46. Germany's DAX index faltered 163.86 points, or 4.00%, to 3,936.89.
Asian markets ended lower. In Japan, the Nikkei 225 index fell 295.90 points or 2.82%, to 10,202.36. In Hong Kong, the benchmark Hang Seng index lost 127.09 points, or 1.22%, to close at 10,325.46.