Stocks moved broadly lower after signs of strength in the January employment report and an increase in December factory orders created uncertainty as to the degree which the Fed will ease rates.
The Nasdaq was the hardest hit, ending the session down 122.06 points, or 4.39%, to 2660.73. The tech-heavy index was led lower by declines in Cisco (CSCO ) JDS Uniphase (JDSU ) and WorldCom (WCOM ).
The Dow closed lower by 119.53 points, or 1.09%, to 10864.10 on weakness in Disney (DIS ), Home Depot (HD ), Intel (INTC ) (INTC -3.1%), and AT&T (T ).
The S&P 500 is down 24.14 points, or 1.76%, to 1349.33.
"The market is taking an expected pause as profit takers unload shares," says Larry Rice, chief investment officer at Josephthal Lyon & Ross. "It's been a great January but we're overbought," he says. "The economy is slowing down but not terrifically and bond yields are up so naturally stocks are down."
According to Rice, the economic numbers confirmed that the slowdown continues, but at a slow pace. "This is not a dramatic shift," he adds. "This is an economy that's been slowing down gradually from a 5.5% growth rate in the first quarter a year ago."
Rice doesn't think it's even close to being the time to hit the panic button. "It's not the old recession times that we used to know from textbook economics," he explained. "Valuations got at the high end of the range, so it's understandable why we're backing off here."
The employment report contained a surprise 280,000 rise in the nonfarm payrolls. Another surprise, though not so pleasant, was a sizeable downward revision in December's figures to +19,000 from +105,000. For January, manufacturing jobs fell 65,000 while the jobless rate rose to 4.2% from 4.0% and hourly earnings remain unchanged.
Barry Hyman, market strategist for Ehrenkrantz, King Nussbaum says the economic data which came out today is leading to a bit of confusion as to how aggressive the Fed cut rates.
"The stronger than expected employment report, even though there's seasonality and revisions in that, it wasn't a clear picture that has been supporting other previous data," Hyman said. "So I don't think it has much market moving effect in terms of eliminating the affect that there's going to be lower interest rates. It just puts into question whether there may be an inter-meeting cut."
The Fed slashed rates 100 basis points to jump-start 2001 growth in January, a scale not seen in a single month since Nov-84. Treasuries responded warmly to the fear that more stimulus may be required, though Friday profit-taking took some steam out of the nearly 3-point week-long rally. Payrolls data featured today and surprising strength in the headline data masked some residual weakness beneath the surface. See fundamental focus.
Stocks in the News
Late Thursday National Semiconductor (NSM ) forecast lower than expected $0.20-$0.22 Q3 EPS on $475 to $480 million in revenues. Robertson Stephens cut its estimates and reiterated its buy rating on the stock.
Business Objects (BOBJ ) posted $0.37 vs. $0.23 Q4 EPS on 41% higher revenues. The company sees $0.20-$0.22 Q1 EPS on revenues of $95 to $98 million.
Starbucks (SBUX ) posted 6% higher January same store sales and 26% higher total sales. The company says it is on pace to achieve $0.91-$0.93 fiscal 2001 EPS.
Methode Electronics (METHA ) expects Q3 EPS will decline about 10% from the $0.21 posted a year ago. The company cites softness across most product lines in electronic segment, with the most significant reductions in automotive electronic controls.
The FTSE 100 finished Friday's session with a minor gain of 4.60 points to close at 6256.40. The biggest contributors to the positive performance were AstraZeneca, BP-Amoco and British Telecom. The U.K. 10-year bond yield edged up less than one basis point to 4.854% as some traders exited positions after signs of strength in U.S. economic reports raised doubts about how aggressive the U.S. Fed would be in future rate cuts.
In Germany, the DAX Index shed 77.09 points (-1.15%) to 6627.59. The biggest contributors to the decline in the DAX included Deutsche Telekom, Infineon and Deutsche Bank. In Paris, the CAC 40 finished Friday's session with a loss of 73.35 points (-1.24%) to close at 5826.37. The French 10-year bond yield was virtually unchanged at 4.929%.
Growing concerns over the health of the U.S. economy and weakness among Japanese tech companies dragged the Nikkei 225 lower for the second consecutive session. The index lost 0.55%, ending at 13,703.63. There are also growing fears on the impact of end-fiscal year selling from investors. Japan's fiscal year ends on Mar 31. Many Tokyo traders expect the Nikkei 225 to be range-bound, between 13,500-14,000 in February, due to lack of incentives to spur the market.
By Alan Hughes in New York