Blue chips extended recent gains Friday on rate cut hopes. The Nasdaq was weighed down by weakness in Dell and RIMM
U.S. stock indexes finished mixed Friday, with blue chips extending their recent sharp gains. Disappointing earnings news concerning Dell (DELL) and Research in Motion (RIMM) weighed on the Nasdaq index. Financials and the broader market found some support from comments from Federal Reserve chairman Ben Bernanke pointing to a possible rate cut, and efforts by the U.S. Treasury to bail out institutions with subprime loan problems.
The Dow Jones industrial average rose 59.99 points, or 0.45%, to finish at 13,371.72. The broader S&P 500 index gained 11.42 points, or 0.78%, to 1,481.14. The tech-heavy Nasdaq composite index was lower by 7.17 points, or 0.27%, at 2,660.96.
Activity in the broader market was positive. On the New York Stock Exchange, 23 shares advanced in price for every 10 that declined. Nasdaq breadth was 16-14 positive.
The S&P 500 was able to bounce back this week after touching its Aug. 16 closing low on Monday, notes S&P chief technical analyst Mark Arbeter. "While it was a major relief for the bulls, we would keep the effervescence in check, as we wait for what we believe will be a critical test of the recent lows," he says.
The market maintained its steady focus on the Fed -- and Bernanke -- Friday. Citing renewed turbulence in financial markets that has partly unwound progress made in September and October, Bernanke said in a speech Friday that the Fed needs to remain "exceptionally alert and flexible" in setting monetary policy. Those were the words investors were waiting for to shore up hopes that the Fed's policy committee will deliver another rate cut on Dec. 11.
Earlier, market sentiment was lifted by a report that the White House and the mortgage industry are close to reaching an agreement that would temporarily freeze interest rates on certain troubled sub prime home loans. With over two million mortgages scheduled to jump over the next two years, an accord could reassure Wall Street and homeowners, the Wall Street Journal reported Friday.
But a rate cut on Dec. 11 isn't necessarily a slam dunk if comments from regional Fed banks are any indication of thinking on the policy committee. Philadelphia Federal Reserve Bank President Charles Plosser said he still sees the upside risk of faster-growing inflation still balancing the downside risk of an economic slowdown and that the Fed's monetary policy can't be expected to fix all the problems in the credit markets.
In economic news Thursday, October personal income rose 0.2%, less than the 0.4% forecast, while consumption increased 0.2%, below the 0.3% gain that was expected. Back data for income and consumption were revised lower. Income was hampered by a subdued 0.1% gain in the weighty wage & salary component. As for consumption, the durable component dropped 0.5%, while nondurable goods increased 0.3% and services rose 0.4%
The core PCE deflator climbed 0.2%, the same as in September, and is up 1.9% year over year from an upwardly revised 1.9% in September. That's just barely inside the Fed's 1.5% to 2% comfort zone indicated by its latest projections.
Overall, the report revealed sizable October shortfalls in consumption and income that have prompted a downward revision to the fourth-quarter GDP growth forecast to 1.0% from 1.5%, after Thursday's report of a 4.9% surge in the third quarter, Action Economics said.
U.S. construction spending plunged 0.8% in October, contrary to the 0.2% increase that had been projected.
January NYMEX crude fell $2.30 to $88.71 per barrel on Friday, as the break below $90 triggered some programmed selling. The growing perception OPEC will boost output next week to reduce prices and prevent a global economic slowdown that would lower demand also factored into today's selling.
Among the stocks in the news Friday, Dell shares sagged after it posted results after the close of trading Thursday. The PC maker reported a third-quarter profit of 34 cents a share, vs. 27 cents a share a year ago on a 9% rise in revenue. The company said that desktop PC revenue fell 1.0%, but revenue from mobility products increased 19%. The company says near-term results could be hurt by a slower decline in component costs and a seasonal shift in mix to U.S. consumer and international regions. Standard & Poor's maintained its hold rating, while Bear Stearns and Broadpoint Capital cut their earnings estimates.
Research in Motion shares fell after Piper Jaffray cut its fiscal 2008-10 EPS estimates and its target price on the Blackberry maker.
Freddie Mac (FRE) priced its $6 billion fixed-to-floating rate non-convertible non-cumulative perpetual preferred stock at $25 a share. The shares have a fixed dividend rate of 8.375% through Dec. 31, 2012 and the dividend will then rise to 416 basis points over 3-month LIBOR or 7.875%.
European stocks finished higher Friday. In London, the FTSE 100 index gained 1.31% to close at 6,432.5. In Paris, the CAC 40 index rose 1.29% to 5,670.57. Germany's DAX index advanced 1.36% to 7,870.52.
Major Asian markets finished mostly higher. Japan's Nikkei 225 index rose 1.08% to 15,680.67. In Hong Kong, the Hang Seng index climbed 0.57% to 28,643.61. The Shanghai composite index fell 2.63% to 4,871.78.
Treasuries fell in price Friday on indications from Bernanke that further monetary easing is a definite possibility, and news that the Treasury Dept. is working to temporarily cap adjustable rate mortgage resets. The 10-year note fell 09/32 to 102-11/32 for a yield of 4.96%, while the 30-year bond tumbled 36/32 to 109-28/32 for a yield of 4.40%.