Stocks ended mixed Friday as investors booked some profits after three straight days of gains. The disclosure of more accounting problems at bankrupt telecom company WorldCom, along with some bad news in the storage sector, weighed on sentiment.
The Dow Jones industrial average gained 33.40 points, or 0.38%, to 8,745.45. The tech-heavy Nasdaq composite index was down 10.40 points, or 0.79%, to 1,306.12. And the broader Standard & Poor's 500-stock index added 3.18 points, or 0.35%, to 908.64.
Next week, the main event is Tuesday's Federal Open Market Committe meeting to decide the direction of interest rates. Speculation about a rate cut after a spate of weak economic data has helped lift the stock market out of a severe slump. As debate intensified about whether the economy could fall back into recession, a few investment banks, such as Goldman Sachs, issued forecasts of lower rates by yearend.
Still, many market watchers think the Fed will stay on hold on Tuesday. "The Fed does not have enough evidence of weakness to justify a rate cut, nor enough evidence of inflation to raise rates," wrote S&P chief economist David Wyss in a report Friday. Still, Wyss does expect a shift to a warning that the primary risk is of a weak economy, but not higher inflation. Overall, he expects no action of any kind from the Fed until mid 2003 since he sees the economy improving in the second half of this year.
And Wednesday, Aug. 14 is the deadline set by the Securities & Exchange Commission for chief executives and chief financial officers of major U.S. companies to certify the veracity of their outfits' financial reports.
In addition, some important economic reports are scheduled over the next several days. With no data out on Monday, all eyes will focus instead on the release of retail sales on Tuesday. S&P MMS' forecast of an 1.2% gain for July is slightly ahead of the median's call. Excluding autos, however, a more modest rise of 0.4% is pencilled in.
On Thursday, the Philly Fed Index is due, along with the July data for industrial production together with the capacity utilisation index.
With inflation not being an issue, the publication of consumer price index (CPI) data on Friday should have limited appeal, although the release later in the day of the preliminary Michigan Sentiment index should garner attention. S&P MMS' call for an 89.5 reading is mildly bullish from the market consensus.
An update on the housing sector also comes Friday with the July readings on housing starts and building permits.
Stocks traded in a narrow range Friday after sharp gains earlier in the week and some negative corporate news. Late Thursday, WorldCom revealed that an internal audit found another $3.3 billion in improperly recorded earnings. In turn, the telecom services provider will now have to increase its financial restatement to $7.2 billion from the $3.8 billion accounting irregularity disclosed earlier this summer.
On the corporate earnings front, shares of data storage products maker Emulex (ELX) plunged after the company reported a narrower fourth-quarter loss, but cut its sales estimates for the fiscal 2003 first quarter and the full fiscal year. Shares of other data storage concerns moved lower in sympathy.
In other news, the Wall Street Journal reports that the federal probe into Adelphia Communications is spreading to suppliers Motorola (MOT) and Scientific-Atlanta (SFA). Both companies say they have been contacted by the Securities and Exchange Commission and the Dept. of Justice about their transactions with the troubled cable company.
In economic news Friday, the Labor Dept. reported second-quarter productivity (business output per hours worked) grew at an annual rate of 1.1%, after jumping 8.6% in the first quarter. The figure was much higher than economists' forecast of 0.5% productivity growth.
Treasuries ended higher in price. S&P MMS says the better-than-expected productivity data supported gains.
Meanwhile, Fed funds fututes prices were lower as the market gets cold feet ahead of Tuesday's FOMC meeting, according to S&P MMS. The market sees only about 20% to 25% chance of an easing on Tuesday, down from just over a 50-50 proposition earlier in the week.
European markets staged a turnaround to trade higher after spending most of Friday's session in negative territory. In London, the FTSE 100 index gained 81.90 points, or 1.93%, to 4,322.40.
In France, the CAC 40 was up 59.49 points, or 1.76%, to 3,447.94. And in Germany, the DAX Index added 81.60 points, or 2.22%, to 3,760.86.
In Asia, the markets finished higher on the heels of gains in the U.S. market Thursday. In Japan, the Nikkei gained 200.22 points, or 2.04%, to close at 9,999.79, led by exporter shares. In Hong Kong, the market added 51.82 points, or 0.52%, to 10,014.06.