Stocks Close Lower

A disappointing revenue forecast from Dell Computer weighed on the market. Treasury yields fell to new multi-decade lows

U.S. stocks closed lower Friday, after a somewhat disappointing revenue forecast from Dell Computer (DELL ) brought tech shares down.

The Dow Jones industrial average closed down 34.2 points, or 0.39%, at 8678.90. The broader Standard & Poor's 500 stock index fell 2.42 points, or 0.26%, to close at 944.25. The tech-heavy Nasdaq composite index was lower by 12.85 points, or 0.84%, to close at 1538.53.

The session began with a new string of economic data. The consumer price index (CPI), a measure of inflation at the retail level, was down 0.3% for the month of April. This is the first time the CPI has dropped in the past year. The core CPI, which excludes food and energy, was flat. Economic research outfit MMS International attributes the dip in prices to lower energy costs and favorable developments in the war.

The U.S. Commerce Department reported new housing starts for the month of April at a 1.63 million annual pace, a slight decline from March.

The preliminary University of Michigan consumer sentiment index for May arrived at 93.2, slightly higher than analysts' estimates. Retail stocks enjoyed a quick uptick after that number was released.

The technology sector came under pressure after one of its leading lights issued a disappointing sales forecast Thursday. After the close of trading, Dell Computer reported first-quarter earnings of $598 million, or 23 cents per share, in line with analysts' estimates and up from 17 cents per share for the same period in 2002. Revenue was $9.5 billion, up 18% from $8.1 billion.

Wall Street appeared to think that the shares, which had enjoyed a strong run so far in 2003, had little upside based on the company's expectation of second-quarter earnings of 24 cents per share on $9.7 billion or more in revenue. Citigroup downgraded its rating on the shares to in-line from outperform based on the stock's valuation. Dell closed down 2.8% Friday.

Prudential downgraded its rating on car manufacturer General Motors(GM ) to sell from hold. General Motors closed down 0.83%. And auto parts & equipment stocks were also lower as the group was downgraded by Prudential to market perform. The downgrade was based on an expectation for disappointing May sales, and weak third-quarter production schedules, says Standard & Poor's MarketScope. Gentex(GNTX ), which sells products to the automotive and commercial building industry, shed 4.37%.

Prudential also lowered its view investment bank Merrill Lynch(MER ) to hold from buy, based on the company's valuation. Merrill shares closed down 1.33%.

In pharmaceuticals, Genentech (DNA ), Novartis (NVS ), and Tanox (TNOX ), announced today that a U.S. Food and Drug Administration advisory committee has recommended the approval of Xolair for treatment of moderate-to-severe allergic asthma in adults, adolescents. Among the companies, Tanox was the biggest gainer, with the stock rising 10.33% to close at 15.38.

In retail news, department store operator, Nordstrom (JWN ), fell 3.44% after being downgraded Friday morning by Credit Suisse First Boston to neutral from outperform. Nordstrom will report first-quarter earnings on Monday, and analysts are expecting 14 cents per share. Credit Suisse First Boston also handed a downgrade of underperform from a neutral to May Department Stores(MAY ), and May was closed down 2.2%.

Looking ahead to next week, the focus remains on the U.S. economy, although the U.S. calendar is almost empty after a raft of key data releases this past week and is unlikely to shed much new light on the economy. The April index of leading indicators is due on Monday, and MMS International forecasts that it will be down 0.2%, the third consecutive month the indicator has dropped.

Meanwhile, initial claims on Thursday are expected to remain above the 400,000 level for the fourteenth week in a row, confirming continued weakness in the labor market.

"Next week, the market is likely to consolidate its recent gains, and there's not much likelihood of significant movement," says Alan Ackerman, market strategist at Fahnestock in New York. "There's so much data out there right now, that it's time (for investors and traders) to relax until the Fed meets in June." Computer manufacturer Hewlett-Packard(HPQ ), and do-it-yourself retail store operator Home Depot(HD ) will each report quarterly earnings on Tuesday.

Treasury Market

Treasuries resumed their uptrend Friday after a record run to fresh contract highs and 45-year yield lows across many maturities as stocks fell. The 10-year yield now stands at 3.46%. Treasuries rallied most of Friday, despite mixed data as the better-than-expected Michigan consumer sentiment is overlooked amid ongoing concerns over lack of pricing power.

The U.S. dollar was enduring another round of losses Friday ahead of the G-8 finance ministers meeting in France. The euro was testing daily highs around the 1.146 against the greenback. The dollar was also lower against the yen.

World Markets

European markets ended mixed on Friday.

London's FTSE 100 index had led the gainers early in the day, and was closed up 0.94% at 4,049.00 U.K. investors are discounting an improved economy later in the year due to steady, relatively low interest rates, notes S&P MarketScope.

Both Germany's DAX and France's CAC 40 indexes moved back above the 3,000 mark, only to slip below in the late afternoon. The DAX finished the day down 0.30 points, or 0.01% at 2,989.08. The CAC 40 closed down 0.04%, at 2,994.87.

Asian markets closed slightly down. Japan's Nikkei 225 average shed 6.11 points, to close 0.08% lower, at 8,117.29, amid concern about the effect further declines in the U.S. dollar vs. the yen will have on exporters.

In Hong Kong, the Hang Seng index finished lower by 32.89 points, or 0.36%, at 9093.18.

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