Investors Stick to the Sidelines
Stocks finished lower Friday after a government report on economic growth came in weaker than expected. The tech sector led the way lower after Goldman Sachs downgraded the semiconductor equipment group.
Meanwhile, terrorist threats on New York City landmarks, renewed violence in the Middle East, and escalating tensions on the Indian subcontinent kept investors on edge. Trading volume was notably light as investors stayed on the sidelines ahead of Monday's Memorial Day holiday. (The U.S. stock and bond markets will be closed Monday.)
The Dow Jones industrial average fell 111.82 points, or 1.10%, to 10,104.26. The tech-heavy Nasdaq composite lost 36.14 points, or 2.13%, to 1,661.49. And the broader Standard & Poor's 500 index was down 13.26 points, or 1.21%, to 1,083.82. Economic data coming next week will be interesting, but not compelling enough to significantly alter current Federal Reserve policy outlooks, says S&P MMS. Tuesday's releases include personal income and consumption, existing home sales, and consumer confidence. The confidence data will likely be the focus; many economists expect modest improvement to 109.5 in May from 108.8 in April.
There isn't much else on the data roster until Friday, when revised first quarter productivity, Chicago PMI, factory orders, and consumer sentiment will be released. Consumer sentiment will probably take the spotlight; economists expect the May index to be unchanged from April at 96.0. The next set of key data -- vehicle sales, ISM, and May employment -- are scheduled for the following week.
The earnings calendar is also very light in the shortened week.
On Friday, the Commerce Department reported preliminary first quarter gross domestic product growth of 5.6%, down from the previous figure of 5.8% and the consensus forecast of 6.0%. Personal consumption was revised lower to 3.2% from 3.5%. Fixed investment, both exports and imports, and government spending were also revised down. The good news in the report was corporate profits rose 0.9% in the first quarter from the fourth quarter, after declining 10.6% in the fourth quarter.
The government also released data on the housing market Friday. New home sales unexpectedly climbed 1.0% to a 915,000 pace in April from a revised 906,000 pace in March (previously 878,000). Declines were evident in all regions except the Midwest. S&P MMS had expected a decline in total sales after the elevated levels of activity seen during the unusually warm and dry winter. The news boosted shares of home builders.
Among stocks on the move Friday, Biogen (BGEN ) jumped after the U.S. Food and Drug Administration approved Biogen's Amevive for treating psoriasis Thursday afternoon. The stock did not trade Thursday because of the impending FDA decision.
But GlaxoSmithKline (GSK ) shares skidded after saying a federal judge ruled that three of its U.S. patents for its antibiotic drug Augmentin are invalid. The drug maker says the generic release of Augmentin may have a material impact on 2002 and 2003 EPS guidance.
In the tech sector, Sun Microsystems (SUNW ) told analysts on a mid-quarter conference call Thursday afternoon that it still expects to meet profit forecasts for the current quarter, even though orders are coming in more slowly than last quarter. The shares fell about 7% Friday.
Goldman Sachs downgraded the U.S. semiconductor equipment sector to market weight from market overweight based on a potential pause in order growth. Applied Materials (AMAT ) and other stocks in the group were pressured on the news.
Treasuries closed higher in price in a holiday-shortened session Friday. An unexpectedly lower revision to first quarter GDP and sinking equities helped support prices. The entire curve finished the session in positive territory in a very thin trade, says S&P MMS.
European markets were mixed on Friday. London's FTSE 100 index ended with a loss of 6.20 points, or 0.12%, to 5,169.10, as UK first quarter GDP was unchanged as the manufacturing sector sank 1.5%. France's CAC 40 index fell 4.16 points, or 0.10%, to 4,337.43, after French first quarter GDP rose 0.4%. And Germany's DAX index gained 19.63 points, or 0.4%, to 4,899.13.
Asian stocks ended mixed. Japan's benchmark Nikkei 225 index fell 3.57 points, or 0.03%, to close at 11,976.28. In Hong Kong, the Hang Seng rose 2.03 points, or 0.02%, to close at 11,626.78.