Stocks ended the week on a grim note as profit warnings from Advanced Micro Devices (AMD ) and EMC Corp. (EMC ) and a worse-than-expected June jobs report worried investors.
Low summertime trading volume exaggerated the impact of negative news on Friday, says Tim Ghriskey, senior portolio manager at Dreyfus Corp. "We started off with some real negatives that just dragged the market down from the beginning," Ghriskey says. Signs of an economic recovery have been mixed -- with consumer spending still strong in areas like auto sales -- but he expects to see "mounting evidence of an economic bottom over the third quarter."
The June employment report showed a steep drop in jobs during the month. Non-farm payrolls fell 114,000, while S&P's research unit expected no change in June. The unemployment rate rose to 4.5%, while S&P saw the unemployment rate up at 4.6% following the unexpected decline in May to 4.4%. Earnings rose 0.3%, in line with consensus forecasts.
Corporate profits were another source of gloom. Shares of IBM Corp. (IBM ), perhaps the only major high-tech company that was viewed as able to resist the tech malaise, were lower after Goldman Sachs cut its estimates for Big Blue.
Data storage company EMC and microchip maker AMD became the latest technology high-flyers to lower profit expectations, issuing warnings after the market close Thursday. EMC said it expects second-quarter earnings per share of $0.04 to $0.06 on revenue of about $2 billion. Advanced Micro, meanwhile, said it sees EPS of $0.03 to $0.05 for the second quarter on sales of $985 million, about 17% below first quarter revenues of $1.2 billion.
Disappointing economic data and endless stream of profit warnings continue to erode confidence in an economic turnaround. "With the weakness for employment for June and operations for capital intensive tech stocks, clearly the economy is not turning around as rapidly as it appeared even a weak ago," says Alan Hoffman, senior portfolio manager at Value Line Asset Management. "We'll have to see if this translates into weak retail sales data. The data underscore the possibility of another inter-meeting rate cut."
Among other stocks in the news Friday, America West (AWA ) said it expects a second-quarter net loss of $20 million to $30 million, excluding special charges. The airline said revenues per available seat mile will be 6% to 8% lower than a year ago.
The Dow Jones Industrial Average lost 227.18 points, or 2.17%, at 10,252.68. The Nasdaq Composite fell 75.93 points, or 3.65%, to 2,004.18. Meanwhile, the broader S&P 500 index lost 28.65 points, or 2.35%, to 1,190.59.
U.S. Treasuries finished mostly higher following the darker-than-expected jobs report for June. The news was viewed as positive for Treasuries as investors looked for a safe haven from stocks.
The data will be looked at for clues about the state of the labor market, the economy and Federal Reserve policy. S&P's research unit expects another quarter-point rate cut at the August 21 FOMC meeting. Though employment figures are more of a lagging indicator, the numbers still reflect a soft economy, especially in manufacturing. With inflation pressures in check, the Fed has room to make another cut. Meanwhile, if July data show more clear signs of a bottoming, central bank may shift its stance to neutral.
European markets ended lower on earnings warnings from U.S. tech companies. Also weighing: The European Central Bank's Vice President Noyer said the bank is unlikely to lower interest rates for the region as long as inflation is a worry. In London, the Financial Times 100 fell 70.40 points, or 1.27%, to 5,479.20. Germany's DAX Index tripped 137.09 points, or 2.29%, at 5,862.10. In France, the CAC 40 lost 124.47 points, or 2.43%, to 4,999.36.
Asian equity markets ended with losses. In Japan, the Nikkei 225 Index ended down 301.22 points, or 2.39%, to finish at 12,306.08. Hong Kong's Hang Seng index lost 208.05 points, or 1.58%, to 12,999.48.
By Amy Tsao in New York