Stocks Close Sharply Lower

Weak GDP growth prompted another round of profit taking. Next week brings a full slate of economic data and profit updates

Stocks finished solidly lower Friday, as investors booked profits on recent April gains. Investors were greeted with a disappointing GDP growth number, which muted sentiment, along with a mixed bag of earnings news.

The Dow Jones industrial average fell 133.69 points, or 1.58%, to 8,306.35. The broader Standard & Poor's 500-stock index declined 12.62 points, or 1.38%, to 898.81. Meanwhile, the tech-laden Nasdaq composite index was down 22.69 points, or 1.56%, to 1,434.54.

After early-week gains, which saw the S&P and Nasdaq indexes reach three-month highs, investors closed out the week with two consecutive losing sessions on Thursday and Friday. On Friday, stocks were pressured by weakness in the semiconductor sector, which was downgraded by UBS Warburg. Semicondutor giant Intel (INTC ) saw its shares fall more than 3%, second-most among Dow components.

Investors received a discouraging read on the U.S. economy Friday morning. In the first quarter, gross domestic product rose 1.6%, below expectations of a 2.0% clip. The worse than anticipated number increased skepticism about the speed of an economic recovery.

"Overall, weaker momentum in economy should boost odds of a Fed rate cut and hopefully push Congress to pass a stimulus package quickly," says David Wyss, chief economist at Standard & Poor's.

The final University of Michigan consumer sentiment index for April came in at 86.0, up from a preliminary 83.2 reading and a 77.6 level in March. The number was better than anticipated.

Finally, new home sales rose 7.3% in March to a 1,012,000-unit clip -- a larger than expected increase. The boost comes after a sharp, weather-induced decline in February. Existing home sales decreased slightly more than expected, 5.6% to 5,530,000 units.

The week ahead brings much more economic data. Numbers set to be released include personal income and consumption, first quarter employment cost index, April consumer confidence, April Chicago PMI, first quarter productivity, April ISM index, and March factory orders.

On the corporate earnings front, Monday brings updates from Dow members Procter & Gamble (PG ) and McDonald's (MCD ). On Tuesday, Northrop Grumman (NOC ) and Bristol-Myers Squibb (MMY ) are set to report results. Other highlights of the week include Disney (DIS ) and Tyco (TYC ) on Thursday and ChevronTexaco (CVX ) and CIGNA (CI ) on Friday.

Friday, Apr. 25, capped another busy corporate earnings week -- in which more than a third of the S&P 500 index companies reported -- with a mixed bag of news.

After Thursday's close, Internet retailer Amazon (AMZN ) reported a smaller quarterly loss, higher revenues, and raised its 2003 outlook.

Before Friday's opening bell, Anadarko Petroleum (APC ) posted a four-fold rise in first quarter profits, and gave optimistic outlooks for 2003 and 2004.

In other earnings news, Weyerhaeuser (W ) swung to a first quarter loss, and Avon (AVP ) posted slightly higher profits.

R.J. Reynolds Tobacco (RJR ) beat analysts' EPS expectations, but warned of reduced earnings potential the rest of the year.

Shares of AMR (AMR ) moved higher by 10% Friday. The company's American Airlines division announced President and COO Gerard Arpey would replace departed chief executive Don Carty. Carty resigned on Thursday, after criticism that he failed to disclose executive perks even as workers agreed to deep labor concessions. On Friday, flight attendents agreed to concessions to help the troubled carrier avoid bankruptcy.

On the geopolitical front, tension increased as North Korea said it possessed nuclear weapons. Meanwhile, worries about SARS and its effect on business, particularly in Asia, continued to grow.

"In a world of just-in-time inventory management, the disruption of trade flows from Asia will markedly reduce production and retail sales," writes BMO Nesbitt Burns economist Sherry Cooper in a note to clients.

Treasury Market

Prices of U.S. Treasuries finished higher Friday. Shorter-term issues especially benefitted from weakness in stocks. Poorer-than-expected GDP numbers added to doubts about economic growth. The GDP figure outshined relatively upbeat consumer sentiment and new home sales data.

In addition to the full slate of economic data expected next week, economic research firm MMS International notes that traders will keenly anticipate the Treasury Dept.'s scheduled Apr. 28 announcement of second and third quarter borrowing requirements, and the Treasury's scheduled Apr. 30 announcement of its May refunding package.

World Markets

European stock markets finished lower Friday. London's FTSE index was down 28.8 points, or 0.74%, to 3,870.2, as UK first-quarter GDP rose a less than expected 0.2%. In Frankfurt, the DAX index decreased 53.39 points, or 1.85%, to 2,838.23. The biggest contributors to the decline in the index were Deutsche Bank, DaimlerChrysler, Volkswagen, Siemens, and SAP. In Paris, the CAC 40 index lost 36.3 points, or 1.25%, to 2,866.74.

In Asia, Japan's Nikkei 225 index finished Friday's session lower by 155.07 points, or 1.97%, at 7,699.5. Sony's weak fiscal 2003 forecasts disappointed investors and sent the index to a fresh post-bubble low. Meanwhile, Hong Kong's benchmark Hang Seng index lost 33.1 points, or 0.39%, to 8,409.01, as the SARS outbreak continued to weigh. Airline Cathay Pacific hit a 17-month low amid the continued plunge in travel.

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