Stocks finished broadly lower Friday, though off their weakest levels. Major indexes suffered a third straight session of heavy losses amid rising Mideast violence, record-high oil prices, and underwhelming earnings news (see BusinessWeek.com, 7/14/06, "Stocks Tumble Amid a Sea of Troubles"). Lackluster economic reports exacerbated market worries, says Standard & Poor's Equity Research.
On Friday, the Dow Jones industrial average fell 106.94 points, or 0.99%, to 10,739.35, led downward by United Technologies (UTX), for a decline of 3.2% on the week. The broader Standard & Poor's 500 index dropped 6.1 points, or 0.49%, to 1,236.19, finishing the week down 2.3%. The tech-heavy Nasdaq composite slid 16.76 points, or 0.82%, to 2,037.35, a weekly loss of 4.3%.
Against an uncertain geopolitical climate, investors have switched into risk-reduction mode, some analysts say. "Risky assets have remained on the back foot and equities have now fully unwound the gains made after the [June 29]FOMC statement," notes Goldman Sachs economist Dominic Wilson in a report (see BusinessWeek.com, 7/29/06, "Stocks Rally After Fed Hikes Rates").
Escalating unrest between Israel and Lebanon weighed on sentiment Friday, as tensions with Iran and North Korea loomed in the background. Oil prices near all-time highs also dampened the mood. August West Texas Intermediate crude oil futures rose 33 cents to a record closing high of $77.03.
Looking ahead, traders have a full economic calendar in store (see BusinessWeek.com, 7/13/06, "Vital Signs: Stop, Go, or Pause for the Fed"). Federal Reserve Chairman Ben Bernanke's monetary policy report July 19 and 20 will be front and center, while investors will also be assessing key readings on inflation. Hawkish Bernanke comments or larger-than-expected rises in the consumer or producer price indexes could add further interest-rate hikes to the market's long list of concerns.
Earnings season also picks up steam next week. Dow members due to report earnings include Caterpillar (CAT), Citigroup (C), Coca-Cola (KO), Honeywell (HON), and IBM (IBM).
The tech sector, stung recently by several high-profile profit warnings, will hear next week from Motorola (MOT), Qualcomm (QCOM) and Yahoo (YHOO), among others.
In earnings news Friday, General Electric (GE) was lower after the Dow component posted a 4% rise in second-quarter earnings, in line with expectations.
Data storage provider EMC (EMC) continued a spate of downbeat tech earnings news. Shares fell after the company said second-quarter profit fell nearly 5%, as the company had warned Monday.
Homebuilder shares tumbled. D.R. Horton (DHI) was sharply lower after the company cut its fiscal-year profit forecast amid a slowdown in the housing market.
On the upside, Stratex (STXN) was solidly higher after the maker of wireless telecom equipment reported a fourth-quarter profit and guided its first-quarter earnings higher.
In M&A news, General Motors (GM) was lower ahead of talks over a potential alliance with Renault and Nissan (NSANY).
Shares of Petco Animal Supplies (PETC) surged as the retailer agreed to a buyout by Leonard Green & Partners LP and Texas Pacific Group for $29 per share in cash.
Investors were also digesting disappointing economic data. Retail sales fell 0.1% in June after rising 0.1% in May. "Today's mixed report adds some downside risk to this quarter's consumer spending growth," observes Bank of America senior economist Peter Kretzmer in a client dispatch.
Elsewhere on the economic front, business inventories jumped 0.8% in May after a 0.7% gain in April. The number increases the risk of stronger-than-expected economic growth, says Action Economics.
Separately, the University of Michigan's consumer sentiment index slipped to 83.0 in the preliminary July reading, from 84.9 in June. Import prices inched up 0.1% in June after a 1.7% gain in May.
European markets finished sharply lower on record oil prices. In London, the Financial Times-Stock Exchange 100 index shed 57.4 points, or 1%, to 5,707.6. Germany's DAX index retreated 105.07 points, or 1.9%, to 5,422.22. In Paris, the CAC 40 index was down 71.73 points, or 1.48%, to 4,780.79.
Asian markets also finished with deep losses. Japan's Nikkei 225 index declined 252.71 points, or 1.67%, to 14,845.24, after the Bank of Japan raised a key interest rate from zero to 0.25%. In Hong Kong, the Hang Seng index skidded 169.77 points, or 1.04%, to 16,135.71. Korea's Kospi index lost 29.89 points, or 2.33%, to 1,255.13.
Treasury yields drifted modestly lower amid stocks' ongoing losses after rising slightly on the strong business inventories data. The 10-year note edged up in price to 100-15/32 for a yield of 5.06%, while the 30-year bond was little changed at 90-23/32 for a yield of 5.11%.