Blue-chip stocks finished higher on Friday as investors bought safe haven stocks in response to a flow of data that showed the economy continues to worsen. Meanwhile, techology stocks slipped on the heels of a downgrade in earnings expectations from a Wall Street firm on Oracle Corp. (ORCL ) and Siebel Systems Inc. (SEBL ).
The dismal economic situation shows no signs of letting up. Investors reacted with caution, putting money in Dow standbys, says Dan Veru, vice president of Palisade Capital. "Clearly the economic environment has not bottomed yet. The ray of the sunshine here is you'll see further rate cuts," he says. Veru does not expect an economic recovery until the middle of 2002.
Most stocks in the blue-chip index were higher. Gainers in the Dow included Johnson & Johnson (JNJ ) Proctor & Gamble (PG ), United Technologies (UTW ) and 3M (MMM ). The Dow Jones Industrial Average jumped 117.69 points, 1.14%, to 10,416.25.
To date, the Fed's easing has done little to spark the economy. The central bank has already cut its key lending rate by 2.75 percentage points to 3.75% since the beginning of the year, but analysts are hoping for continued aggressive rate cutting to jumpstart the economy and corporate profits. Most analysts expect a 25 basis point rate cut at the next meeting of the FOMC -- the Fed's rate-setting committee -- on Aug. 21.
Technology stocks finished under water after an investment firm lowered its earnings expectations for Oracle and Siebel Systems, renewing concerns about corporate profits. Goldman Sachs told its sales force it expects the software business to worsen. The brokerage also noted it does not believe current Wall Street estimates capture the magnitude of capital spending constraints going into 2002, particularly given negative anecdotal data coming out of Europe.
The tech-heavy Nasdaq Composite lost 6.85 points, or 0.35%, to 1,956.47. The broader S&P 500 Index added 6.73 points, or 0.57%, to 1,190.16.
In economic data, the government released a new report that suggests inflation is in check. According to the Labor Department, prices paid to U.S. producers -- a gauge of inflation at the consumer level -- dropped in July at the fastest pace in nearly eight years, led by huge declines in energy prices. The stock market had little reaction to the data.
Among Friday's stocks in the news, US Airways (U ) forecast a third quarter loss in excess of $160 million before unusual items, and expects to record a pretax charge of about $405 million related to weak business travel.
U.S Treasuries ended higher on the heels of the latest consumer inflation data.
The Producer Price Index fell 0.9% last month after falling 0.4% in June. It was the biggest drop in the PPI since a 1% decline in August 1993 and was led by the largest decrease in energy prices in nearly 12 years. Excluding the more volatile food and energy sectors, the so-called core PPI rose 0.2% in July after posting a 0.1 percent increase in the prior month. The numbers compared to estimates from Wall Street economists who on average figured the PPI fell 0.3% last month while the core rose 0.1%.
European markets finished mixed. In London, the Financial Times-Stock Exchange 100 index ended higher by 24.30 points, or 0.45%, to 5,427.20 amid some favorable earnings reports and forecasts. In France, the CAC 40 finished off 42.48 points, or 0.86%, to 4,846.02. In Germany, the DAX Index finished down 78.79 points, or 1.43%, to 5,433.49 as markets are still reeling from Bayer AG's drug recall earlier in the week and indications that the economy is slowing.
In Asia, markets ended mixed. The Nikkei gained 19.50 points, or 0.17%, to 11,735.06. In Hong Kong, the market added 49.04 points, or 0.42%, to 11,765.81.