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| Currency | US Dollar |
|---|---|
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| Japanese Yen to US Dollar | 0.010414 |
| Canadian Dollar to US Dollar | 0.861846 |
A two-day rally that saw the Dow Jones industrials jump nearly 734 points crumbled Friday.
The Dow fell more than 171 points on the day, or 1.4%, to 12,207. The Standard & Poor's 500 Index was off 21 points, or 1.6%, to 1,331, and the Nasdaq Composite Index was off 35 points, or 1.5%, to 2,326.
The pullback came despite repeated attempts at rallies and was strong evidence that fear continues to dominate the financial markets.
"People are selling because they don't want to be in a market that scares them," Ernie Ankrim, chief investment strategist at Russell Investment Group in Tacoma, Wash., told CNBC this afternoon.
Plus the uncertain condition of the economy weighed on markets. "The economy is still up in the air because so much of it depends on people having paychecks," Kim Caughey, equity research analyst at Fort Pitt Capital Group, told The Associated Press.
The weak finish sets up a big week next week, with the Federal Reserve expected to cut interest rates again Wednesday.
The Fed is expected to cut its key federal funds rate perhaps to 3% from 3.5% now. The fed funds rate is the rate that banks charge each other for overnight loans.
The Fed surprised the markets on Tuesday by cutting the fed funds rate to 3.5% from 4.25% and its discount rate to 4% from 4.75%, hoping the big moves would help the economy avoid recession. The discount rate is the rate the Fed charges banks for short-term loans.
Earnings reports will flood the market, with such companies as McDonald's (MCD, news, msgs), 3M (MMM, news, msgs), Yahoo (YHOO, news, msgs), Google (GOOG, news, msgs) and ExxonMobil (XOM, news, msgs) scheduled to report.
The Commerce Department will report on fourth-quarter gross domestic product on Wednesday. Economists expect the report to show economic growth slowing to 1.9% from 4.9% in the third quarter. On Friday, the Labor Department will report on January payrolls and unemployment.
| Close for week | Wk. ago close | % chg. | YTD. chg. | |
|---|---|---|---|---|
| Dow Jones industrials | 12,207.17 | 12,099.30 | 0.89% | -7.97% |
| S&P 500 | 1,330.61 | 1,325.19 | 0.41% | -9.38% |
| Nasdaq Composite | 2,326.20 | 2,340.02 | -0.59% | -12.29% |
| Russell 2000 | 688.60 | 673.18 | 2.29% | -10.11% |
| Crude oil per barrel | $97.91 | $90.57 | 0.02% | -5.62% |
| 10-yr. Treasury yield | 3.58% | 3.65% | -1.75% | -11.18% |
| Gold per troy ounce | $912.80 | $881.70 | 3.53% | 8.93% |
Why an opening rally fell apart
A big reason for Friday's sell-off was disappointment that a 5% gain in shares of software giant Microsoft (MSFT, news, msgs) couldn't hold. When Microsoft shares fell into negative territory, the entire market went with them. Microsoft closed down 0.9% to $32.94. (Microsoft is the publisher of MSN Money.)Microsoft's strong earnings report late Thursday and big reports from Caterpillar (CAT, news, msgs) and Honeywell International (HON, news, msgs) had sent the Dow up as much as 108 points right after Friday's open. Caterpillar closed up 1.4% to $66.19; Honeywell ended up 3.7% to $58.25.
Stock Charts (Year)
Microsoft
Honeywell International
Meanwhile, concern erupted yet again that the woes of financial companies weren't over, and, CNBC's Bob Pisani reported that many short-sellers were heavily shorting those shares. In short selling, a trader sells shares borrowed from a broker, expecting the price to fall. They get their profit by buying the shares back and returning them.
There has been persistent talk that more big write-downs are coming from banks and financial institutions in the United States. That pushed JPMorgan Chase (JPM, news, msgs) down 2.9% to $43.64. Citigroup (C, news, msgs) was off 2.4% to $26.67; Goldman Sachs (GS, news, msgs) slumped 3.8% to $191.37.
Merck (MRK, news, msgs) was the Dow loser, down 3.6% to $47.79. Merck and Schering-Plough (SGP, news, msgs) have been struggling to support their cholesterol drugs Vytorin and Zetia after a recently released study raised questions about their effectiveness. (Schering Plough fell 5.7% to $19.02.)
Lastly, many investors didn't want to take big positions over the weekend, especially with the Fed meeting next week. There were two signals of that fear:
- Gold jumped $4.90 an ounce to $910.70 after hitting an all-time intraday high of $924.30. Gold finished the week up 3.3% and is up 8.7% in January. (In fairness, one reason for gold's jumped was that several mining companies in South Africa shut down operations because of a power shortage.)
- Interest rates fell. The yield on the 10-year Treasury note fell to 3.58% on Friday, down from 3.64% on Thursday. The yield has fallen 11% this month alone from 4.03% on Dec. 31.
Where things stand
The Dow finished the week with a 0.9% gain. It's still down nearly 8% for the month. The S&P 500 was up 0.4% for the week but is down 9.4% for the month. The Nasdaq fell 0.6% for the week, its fifth consecutive weekly loss, and is down 12.4% for the month.If the Dow's close holds through next the end of the month on Thursday, the Dow will have suffered its second-worst January since 1929 -- after an 8.4% decline in January 1960. The January losses for the S&P 500 and the Nasdaq may well be their worst.
The great correction/bear market of 2007-2008 is still quite alive.
From peaks last summer and in the fall, the U.S. markets have fallen at least 12% overall. The Dow and S&P 500 ended the week down 14% and 15% from their Oct. 9 peaks. The Nasdaq is off 18.6% from its six-year closing high on Oct. 31. Here's a look at how major indexes have fared from their peaks.
| Most recent close * | Change from closing peak | Date of peak | |
|---|---|---|---|
| Dow Jones Industrial Average | 12,207.17 | -13.82% | Oct. 9, 2007 |
| S&P 500 Index | 1,330.61 | -14.99% | Oct. 9, 2007 |
| S&P 100 Index | 621.53 | -14.83% | Oct. 9, 2007 |
| Nasdaq Composite Index | 2,326.20 | -18.64% | Oct. 31, 2007 |
| Nasdaq-100 Index | 1,789.17 | -20.09% | Oct. 31, 2007 |
| S&P Midcap 400 Index | 771.87 | -15.84% | Oct. 9, 2007 |
| Russell 2000 Index | 688.60 | -19.53% | July 13, 2007 |
| Dow Jones Utilities Average | 484.14 | -12.41% | Dec. 10, 2007 |
| Dow Jones Transportation Average | 4,474.82 | -17.84% | July 19, 2007 |
| Nikkei 225 Index (Japan) | 13,629.16 | -21.94% | Oct. 11, 2007 |
| FTSE 100 Index (Britain) | 5,869.00 | -12.80% | Oct. 12, 2007 |
| Dax Index (Germany) | 6,816.74 | -15.23% | Oct. 12, 2007 |
| * Closes are as of Friday, Jan. 25. |
The role of the chart watchers
For more than a year, a powerful support level for the S&P 500 had been 1,370. Whenever the index dropped to that level, it tended to bounce higher.When the index fell under 1,370, it got a new role: resistance point. That is, when the index gets close to 1,370, selling should start to kick in.
That's exactly what happened on Friday. The S&P 500 had put in a bottom on Wednesday at 1,268 and started to move higher. Its peak on Thursday was 1,355.
Friday, the index hit 1,368.56 within 10 minutes of the open, and selling promptly kicked in. You can see the index movement here. (To get the intraday view of the chart, click on 1d at the far left of the page.)
| Tues. | Mon. | Chg. | Month chg. | YTD chg. | |
|---|---|---|---|---|---|
| Crude oil (NYMEX) (per barrel) | $90.71 | $89.41 | $1.30 | -5.49% | -5.49% |
| Heating oil (per gallon) | $2.5191 | $2.4763 | $0.0428 | -4.92% | -4.92% |
| Natural gas (per million BTU) | $7.9830 | $7.8020 | $0.1810 | 6.68% | 6.68% |
| Unleaded gasoline (per gallon) | $2.3182 | $2.2828 | $0.0354 | -6.93% | -6.93% |
Did Xbox sales hit Microsoft shares?
One reason Microsoft shares might have fallen back on Friday was that the company shipped 4.3 million Xbox 360 systems in the Dec. 31 quarter, compared with 4.4 million systems during the same period in 2006. That was a decline of 2.3%, Information Week reported, and came despite blockbuster sales for the "Halo 3" game.The Entertainment and Devices division reported a 3% revenue gain for the fiscal-second quarter while the company overall saw a 30% revenue gain to $16.4 billion in the quarter. Revenue was ahead of the consensus analyst estimate of $15.95 billion.
More than 17 million Xbox 360 consoles have been sold since it was introduced.
Microsoft earned $4.7 billion, or 50 cents per share -- a 79% jump from the $2.6 billion, or 26 cents per share, Microsoft earned in the same quarter a year ago. Analysts were looking for earnings of 46 cents per share.
Video on MSN Money
Fed move: Too little, too lateWall Street didn't like the Fed's latest move: a 3/4-point rate cut on Jan. 22. Of course, the markets always want lower rates, says MSN Money's Jim Jubak, but this time they may be right that this cut wasn't enough. Look for the Fed to cut rates by an additional half-point on Jan. 30.
"This will help the psychology of Microsoft's stock and will help tech investors feel better about the tech sector overall," Chuck Jones, money manager at Atlantic Trust Private Wealth Management, told Bloomberg News.
Microsoft said that sales of its new Windows Vista operating system and the latest version of its Office program helped results.
Sales in the company's client division, which makes Windows, rose 67% to $4.3 billion; the business division, the maker of Office, saw sales jump 37%.
Personal-computer shipments rose 13.1% in the fourth quarter of 2007 from the same quarter in 2006, according to research company Gartner.
Chief Financial Officer Chris Liddell said Microsoft's diversified product mix will help it avoid the pinch of a slowing U.S. economy.
Goldman, Credit Suisse to cut 2,000 jobs
Just a week after Citigroup announced that it was cutting another 4,000 jobs because of the turmoil in the stock markets, Goldman Sachs and Credit Suisse (CS, news, msgs) said Friday they would cut about 2,000 job worldwide as a credit crisis puts a damper on fixed-income trading and corporate deal making.Goldman Sachs plans to cut its global work force 5%, targeting the worst-performing employees.
The reduction at Goldman, which employs about 30,500 worldwide, represents about 1,500 employees. The winnowing is something Goldman does every year, the company said.
Credit Suisse said it will cut about 500 jobs, mostly in its investment banking operations. It said current business isn't good enough to keep the jobs.
Credit Suisse was off 2.4% to $53.95.
On Thursday, Morgan Stanley (MS, news, msgs) said that it is assessing its needs, which would likely result in job cuts; media reports suggest that the bank would cut 1,000 jobs.
At Caterpillar: Great profit, gloomy outlook
Dow component and heavy-equipment maker Caterpillar Friday reported earnings of $975 million, or $1.50 per share, a 14% jump from the same period last year. Sales rose 10% in the quarter to $12.14 billion.- Video: More on Caterpillar
The company wasn't so rosy about the U.S. economy, however. The company expects "anemic growth in the U.S. economy" but better economic conditions in the rest of the world.
More from MSN Money
For the year, Caterpillar said revenue rose 8% to $44.95 billion, with full-year earnings climbing 4% to $5.37 per share.
Caterpillar said it expects sales to rise 5% to 10% in 2008 and earnings per share to increase 5% to 15% from 2007 figures.
Owens shared a more uplifting outlook at the World Economic Forum in Davos, Switzerland. At the forum, Owens said that he is "considerably more optimistic" than the general mood; he added that the housing market and the subprime mess are starting to clear up.
Continued: Honeywell has a big quarter
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