U.S. stocks finished a volatile week with losses Friday as a drop in energy futures weighed on oil issues while the broader market ran into profit taking despite stronger-than-expected earnings data from Microsoft (MSFT) and Amazon.com (AMZN), and a 9.4% surge in September existing home sales.
Investors showed signs of concern about the market's current levels amid uncertainty about the economy's recovery pace, and apparently used the positive headlines as an excuse to cash in on some of the market's gains over the last seven months.
On Friday, the 30-stock Dow Jones industrial average finished lower by 109.13 points, or 1.08%, at 9,972.18. The broad Standard & Poor's 500-stock index was down 13.31 points, or 1.22%, at 1,079.60. The tech-heavy Nasdaq composite index fell 10.82 points, or 0.50%, to 2,154.47.
On the New York Stock Exchange, 23 stocks were lower in price for every seven that advanced. Breadth on the Nasdaq was 20-6 negative.
Treasuries fell after Federal Reserve Chairman Ben Bernanke urged Congress to tackle regulatory reform. Meanwhile, a dispatch from FT.com speculated that the Fed may be making changes to the language of its policy statement as it prepares for the eventual removal of policy accomodation.
The dollar index rose, sending gold futures lower.
"The market isn't responding [to good news] the way it was earlier," says Peter Cardillo, chief market economist at Avalon Partners. One reason is that investors are already expecting corporate earnings, guidance and even sometimes revenue to be better than expected, he says.
But, Cardillo adds, economic news expected next week could continue to push the market higher.
"It's taking a little breather here," Cardillo said of the stock market's rally. "There isn't a rush to sell stock, and there isn't a rush to buy stocks – which is a perfect setting for a consolidation phase before we move higher again."
Richard Sparks, of Schaeffer's Investment Research, notes that the market has spent the last seven session "dancing around the 10,000 level on the Dow," always within 100 points of that key level. "We have this psychological level that's going to be difficult to overcome," Sparks says. "It's a logical place to pause and catch our breath."
The stock market has come so far so fast that a decline of a couple days is not necessarily significant, Sparks says. "This sideways movement isn't much of a concern for me right now," he says.
An FT.com report said the Fed could water down "extended period" language in its statement to a more neutral "some time" reference in order to maximize its options as it prepares to head to the exits on extremely accommodative policy. The article cites "senior officials" as seeking some sort of transitional language that won't spark fears of an imminent rate hike.
Stocks finished mixed in Europe, with benchmark indexes posting losses of 0.39% in Frankfurt and 0.33% in Paris, while London posted a 0.68% gain. Asian markets advanced, with Tokyo stocks up 0.15%, Hong Kong higher by 1.71%, and Shanghai ahead 1.85%. Microsoft's reported third-quarter earnings per share of 40 cents, above expectations of 32 cents, while revenues fell to $12.92 billion, above analysts' consensus estimate of $12.31 billion. Net income of $3.57 billion declined 18% from a year ago. The software giant attributed its relatively strong performance to reducing operating expenses and keeping a tight grip on costs.
The launch of Microsoft's Windows 7 operating system on Thursday to positive reviews, along with blowout earnings from Amazon.com (AMZN) provided some support to the tech sector. But a slide in Broadcom (BRCM) tempered tech investors' enthusiasm.
Profits at manufacturer Honeywell International (HON) sank 15%, though they were above Wall Street forecasts, while Ingersoll-Rand (IR) profits declined as well.
In economic news Friday, U.S. existing home sales jumped 9.4% in September to a 5.57 million-unit annual rate, (the highest since July 2007) from a downwardly revised 5.09 million in August (was 5.10 million). Single family sales were up 9.4% to a 4.89 million pace, rebounding from the 2.9% slide in August. Condo/coop sales climbed 9.7% to a 0.68 mln clip. The months' supply of homes shrunk to 7.8 (the lowest in 30 months) from 9.3 (revised from 8.5 previously). The median price fell to $174,900 in September from a revised $177,300 in August (was $177,700). That's down 8.5% yera-over-year.
"The data are much better than expected, and probably boosted by anticipation of the end of the first time homebuyer tax credit at the end of next month," says Action Economics.
Bernanke's prepared remarks Friday didn't touch on monetary policy or the economy, but stayed on the regulation topic. He said the Fed and regulators must improve their performance, adding regulators need more tools to help curb systemic risks. He also implored Congress to close regulatory gaps, especially on the "too big to fail" problem. Financial firms should face "robust" oversight, and the financial industry should bear the costs to shut firms, not taxpayers.
Britain's failure to escape the worst recession since World War II may force the Bank of England to increase its bond-purchase plan next month, economists said. Seven months after Governor Mervyn King's central bank started a 175 billion-pound ($287 billion) program to rescue the economy, the Office for National Statistics said today gross domestic product unexpectedly shrank 0.4% in the third quarter. None of the 33 economists surveyed by Bloomberg predicted a contraction. Britain is still mired in recession even after pledges of about one trillion pounds in stimulus and banking aid from the Bank of England and Prime Minister Gordon Brown.
Among other stocks in the news Friday, Honeywell International () posts third-quarter earnings per share (EPS) of 80 cents, vs. 97 cents EPS one year earlier, a on 17% revenue decline. Wall Street was looking for EPS of 72 cents.
American Express (AXP) posted third-quarter EPS from contiuing operations of 54 cetns, vs. 74 cents EPS one year earlier, on 16% lower total revenue. Excluding a non-recurring benefit associated with the company's accounting for net investment in consolidated foreign subsidiaries, adjusted EPS from continuing operations were 44 cents. wall Street was looking for 38 cents EPS.
Whirlpool (WHR) posted third-quarter EPS of $1.15, vs. $2.15 EPS one year earlier, on an 8% revenue decline. Wall Street was looking for EPS of 77 cents.
Burlington Northern Santa Fe (BNI) reported third-quarter EPS of $1.42 (including a 6-cent gain), vs. $1.99 EPS one year earlier, on a 27% revenue drop.