Stocks finished Friday's session solidly lower amid increased risk of terror attacks against the U.S. and ongoing worry about possible war with Iraq.
"With the earnings season largely over, geopolitical concerns will continue to dominate market swings, with all eyes on the next U.N. inspector update on Feb. 14," says S&P economist David Wyss. Economic research group MMS figures that the Feb. 14 report from weapons inspectors may be the final catalyst for a U.S.-led confrontation with Iraq.
The Dow Jones industrial average fell 65.34 points , or 0.82%, to 7,863.96. The broader Standard & Poor's 500-stock index slipped 8.49 points, or 1.01%, to 829.66. The tech-laden Nasdaq composite index fell 19.27 points, or 1.48%, to 1,282.46. The major stock indexes finished down 3% for the week and are down about 6% year-to-date.
Over the week, investors were attracted to safe-haven stocks like consumer staples and energy, Wyss says.
The Department of Homeland Security raised the level of terrorism alert to "orange" (high), from "yellow" (elevated). Government officials urged Americans to increase vigilance both at home and abroad. The change is based on an increase in intelligence suggesting a possible attack by Al Qaeda during the annual Muslim pilgrimage to Mecca in Saudi Arabia, which begins Saturday and ends next week.
The war dream is beating louder. At at a conference in Italy Defense Secretary Donald Rumsfield said that the U.S. and its allies may need to use military force to disarm the Iraqi regime.
A better-than-expected January update on unemployment could not offset worry over the looming possibility of war. January unemployment data were a welcome surprise. U.S. non-farm payrolls surged 143,000 during the month after a revised 156,000 decline in December. The unemployment rate fell to 5.7% from 6.0%. Economists had been expecting no change in the number. The length of the work week rose to 34.2 hours from 34.1 while average hourly earnings were flat.
In the later part of next week investors will have more key economic data to sift through. On Thursday: January retail sales data, import and export prices, and initial jobless claims for the previous week. On Friday: December business inventories, industrial production for January and the University of Michigan consumer sentiment gauge.
Though earnings season is winding down, many companies are set to release earnings reports next week including Yum! Brands (YUM) and MetLife (MET) on Monday. Applied Materials (AMAT), Aetna (AET) and Clorox (CLX) are reporting Tuesday.
On Wednesday, Coca-Cola (KO) and Medtronic (MDT) will report. Thursay will bring releases from Nvidia (NVDA) and Calpine Corp. (CPN). On Friday Navistar International (NAV) is set to post results.
On Friday, President Bush's advisers presented Congress with an upbeat analysis of U.S. economic prospects. The assessment relies on the notion that faster growth will help offset nearly half the cost of tax cuts over the next five years while also reducing deficits.
On the earnings front Friday, investors are mulling earnings from Electronic Data Systems (EDS). It reported fourth-quarter earnings of $0.75 cents a share, down from $0.82 a share, a year earlier. Of more concern: revenues fell to $5.5 billion, from $5.8 billion.
Another signal of the technology sector's prospects came from fiber optic cable maker Corning (GLW). The company said that its first-quarter sales would be down compared to the fourth quarter. It previously said that a recovery in the telecom sector will not materialize until late 2004. However, Corning said it expects to return to profitability in the third quarter.
Dow member Johnson & Johnson (JNJ) is in discussions to acquire biotechnology company Scios Inc. (SCIO) for about $2 billion, according to the Wall Street Journal. Scios said it is in talks with several companies about a possible merger.
U.S. Treasury prices finished gained ground as investors reacted to the rising threat of war by increasing positions in government backed bonds. "We think the figures [in the employment report] reflect an economy that is indeed on the mend after a poor showing in the fourth quarter," say MMS.
European stocks finished mostly lower. London's FTSE index finished up 2.20 points, or 0.06%, to 3,599.20, amid a report showing U.K. manufacturing index fell last year by the largest margin in 11 years. Paris' CAC-40 index slipped 39.52 points, or 1.39%, to 2,796.66. In Frankfurt, the DAX index fell 79.66 points, or 3.01% to 2,569.34.
In Asia, stocks ended mixed. Japan's Nikkei 225 index lost 36.03 points, or 0.42%, to 8,448.16 as geopolitical risk continued to weigh on investor sentiment. Hong Kong's benchmark Hang Seng gained 24.80 points, or 0.27%, to 9,150.95.