Stocks finished sharply lower Friday for the second straight day, as a surprising jump in import prices drove up Treasury yields and kept inflation fears in focus. Sustained dollar weakness contributed to these worries, says Standard & Poor's Equity Research.
The Dow Jones industrial average fell 119.74 points, or 1.04%, to 11,380.99, ending the week down 0.5%. The broader Standard & Poor's 500 index fell 14.68 points, or 1.12%, to 1,291.24, a weekly decline of 1.6%. The tech-heavy Nasdaq composite dropped 28.92 points, or 1.27%, to 2,243.78, tumbling 3.4% for the week.
Some analysts say they are increasingly worried the Federal Reserve will have to continue raising interest rates. "With consumer spending growth likely to slow significantly, we still see good prospects for economic developments to unfold in a way that will allow the Fed to remain at 5%," says Joseph LaVorgna, chief U.S. fixed income economist at Deutsche Bank. "But given the FOMC's increased sensitivity to inflation risks, we admit to feeling less comfortable with that position."
Investors were weighing another set of economic data Friday. Import prices climbed 2.1% in April, above the projected 1.2% rise. Meanwhile, the U.S. trade deficit unexpectedly decreased to $62 billion in March.
Also on the economic docket, the University of Michigan's preliminary May reading for consumer sentiment tumbled to 79.0, from April's 87.4 final reading. That's well below forecasts, says Action Economics.
A busy economic calendar is set for next week. April consumer and producer price indexes are due, along with figures on housing starts, industrial production and regional manufacturing activity.
On the corporate side Friday, General Motors (GM) was higher on an upgrade from hold to buy at KeyBanc Capital Markets.
Retailer Kohl's (KSS) edged lower despite reporting a 34% gain in quarterly profit and raised its 2006 forecast on rising sales of home goods.
Expedia (EXPE) was sharply lower after the Internet travel agency posted 51% lower first-quarter earnings, citing an increase in marketing and administrative costs and a drop in U.S. sales.
In M&A activity, Best Buy (BBY) fell on news the electronics retailer agreed to buy a majority stake in China's Jiangsu Five Star Appliance for $180 million.
Separately, Yahoo (YHOO) was lower after reports that Chairman and CEO Terry Semel said the company rejected a bid by software giant Microsoft (MSFT) for a stake in the Internet media company.
In the energy markets Friday, June West Texas Intermediate crude oil futures closed down $1.28 at $72.04 a barrel after the International Energy Agency lowered its forecast for global oil demand.
European markets finished sharply lower. In London, the Financial Times-Stock Exchange 100 index fell 129.9 points, or 2.15%, to 5,912.1. Germany's DAX index skidded 138.44 points, or 2.29%, to 5,916.28. In Paris, the CAC 40 index tumbled 112.49 points, or 2.14%, to 5,150.45.
Asian markets finished lower. Japan's Nikkei 225 index slid 260.36 points, or 1.54%, to 16,601.78. In Hong Kong, the Hang Seng index dropped 238.93 points, or 1.39%, to 16,901.85. Korea's Kospi index declined 19.5 points, or 1.33%, to 1,445.2.
The jump in import prices pushed Treasury yields higher, says Action Economics. Prices for 10-year Treasury notes dropped to 99-17/32 with a yield of 5.19%, while 30-year bonds fell to 88-04/32 for a yield of 5.3%.