WaMu shares slump, stall rally

By Charley Blaine and Elizabeth Strott

Concern about the financial health of Washington Mutual (WM, news, msgs), the nation's largest savings bank, crushed the stock and trimmed a market rally on Friday.

WaMu was down 11.5% on Friday to $10.17. The stock has fallen 78% from its May 2006 peak and finished Friday down 53% so far this year.

WaMu is widely considered one of the most vulnerable financial companies in the wake of the collapse in subprime mortgages and the global credit crunch. Thursday, advisory firm Glass, Lewis & Co. of San Francisco criticized the company's board of directors and recommended shareholders vote against all five members of the compensation committee at the company's upcoming annual meeting.

Also, Keefe, Bruyette analyst Frederick Cannon said that mortgage and other credit problems will lead to a bigger 2008 loss, and may keep the largest U.S. savings and loan from making money before 2010, Reuters reported.

Cannon expects WaMu to lose $3.15 per share in 2008, more than double the $1.45 per share loss he had previously expected. He also expects the thrift to break even in 2009, after earlier forecasting a profit of $2.25 per share.

While WaMu officials didn’t comment on the reports that short-sellers were driving the stock lower, the situation may set up Monday for a tentative open at best.

The decline turned what had been a modest gain for the Dow Jones industrials into a 17-point loss to 12,609. The Standard & Poor's 500 Index managed to end the day with a 1-point gain at 1,370 and the Nasdaq Composite Index was up nearly 8 points, or 0.3%, to 2,371.

A Microsoft threat hits Yahoo shares

After the market close, shares of Yahoo (YHOO, news, msgs) fell about 3% to $27.49 on reports that software giant Microsoft (MSFT, news, msgs) was reevaluating its $44.6 billion bid for the Internet search company. (Microsoft is the publisher of MSN Money.)

Microsoft threatened to reduce or even abandon its bid for Yahoo, a move that would knock down Yahoo's stock, according to reports from Reuters and CNBC. The reports, which originated in Microsoft, are widely believed to be a negotiating ploy, CNBC's Jim Goldman said.

The threat came after two meetings between Microsoft and Yahoo, including one this week, ended without resolution, The Wall Street Journal had reported Friday. Sources told Reuters and CNBC that Microsoft had told Yahoo executives that market conditions had deteriorated.

Microsoft executives told their Yahoo counterparts that the shares could fall into the "low teens" if Microsoft walked away, Goldman said. If that occurs, one Microsoft source told Goldman, "Yahoo's board of directors will need a snorkel and mask to keep breathing from the flood of shareholder lawsuits they'll face."

Yahoo had closed at $28.36 in regular Nasdaq trading. Microsoft was up 1.2% in after-hours trading to $29.50. The stock had moved up 0.6% to $29.16 in regular trading.

Microsoft's cash-and-stock offer was valued at $44.6 billion when it was made Jan. 31, but a drop in the software maker's share price has reduced the value to about $42 billion, or $29.29 a share, The Journal said.

The markets for the week

	Close for week	Wk. ago close	% chg.	YTD. chg.
Dow Jones industrials	12,609.42	12,216.40	3.22%	-4.94%
S&P 500	1,370.40	1,315.22	4.20%	-6.67%
Nasdaq Composite	2,370.98	2,261.18	4.86%	-10.61%
Russell 2000	713.73	683.18	4.47%	-6.83%
Crude oil per barrel	$97.91	$101.84	4.31%	10.68%
10-yr. Treasury yield	3.48%	3.46%	0.49%	-13.73%
Gold per troy ounce	$913.20	$920.00	-0.74%	8.97%

A strong week for stocks

The Dow had been down as many as 98 points in reaction to a worse-than-expected report on nonfarm payrolls, then rebounded to a gain of as many as 62 points.

Despite the stall at the close, it was a strong week for stocks and provided more ammunition for market bulls who believe the worst of the stock market's decline since October is over.

The Dow ended the week with a 3.2% gain, its third-best weekly performance of the year. The S&P 500 was up 4.2%, its second-best weekly gain this year.

The Nasdaq's 4.8% gain was its best of the year, and the Nasdaq-100 Index ($NDX.X), which tracks the largest Nasdaq shares, was up 5%, its best week of the year.

The Nasdaq-100 finished Friday with an 11-point gain, or 0.5%, to 1,866 on Friday, thanks in part to a 3.5% gain to $471.09 for Internet search giant Google (GOOG, news, msgs) and a 2.6% gain to $76.87 for Amazon.com (AMZN, news, msgs).

The market's gains for the week were largely due a huge rally on Tuesday that saw the Dow rise 391 points. Bulls were delighted that the stocks maintained their levels for the rest of the week.

For the year, the Dow is down 5%. The S&P 500 is down 6.7%, and the Nasdaq is off 10.6%.

The market was actually quite resilient on the day in the face of a worse-than-expected report on nonfarm payrolls.

Down as much as 18% in January from its Oct. 9, 2007 all-time closing high, the Dow's loss has been trimmed to 11%. The S&P 500, briefly down 20% on March 17 from October in the turmoil over Bear Stearns (BSC, news, msgs), is now off 12.4% from its October peak. And the Nasdaq's loss from a peak on Oct. 31 has shrunk from 25% on March 17 to 17% on Friday.

Crude oil closed at $106.23 a barrel in New York, up 2.3% from Thursday. Gold finished the day up $3.60 an ounce to $913.20, and wheat was up 37.5 cents a bushel to $9.90.

Energy shares were generally higher; Schlumberger (SLB, news, msgs) was up slightly to $91.37. So were metals stocks; U.S. Steel (X, news, msgs) was up 2% to $140.70, and fertilizer maker Mosaic (MOS, news, msgs) was up 10% to $115.07.

Only 13 of the 30 Dow stocks were higher on the day, but 259 S&P 500 stocks finished with gains, along with 58 Nasdaq-100 stocks. The Dow leader was Merck (MRK, news, msgs), up 4.3% to $40 in a rebound from battering earlier this week about the effectiveness of the drug Vytorin, which it markets with Schering-Plough (SGP, news, msgs). Schering-Plough was up 4.8% to $16.12 on the day.

The loser was General Motors (GM, news, msgs), down 4.7% to $20.58 after a private equity firm said it wanted to back out of a deal to invest $2.55 billion in Delphi Corp., GM's biggest parts supplier.

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Energy prices -- New York close

	Fri.	Thur.	Chg.	Month chg.	YTD chg.
Crude oil (NYMEX) (per barrel)	$106.23	$103.83	$2.40	4.58%	10.68%
Heating oil (per gallon)	$2.9921	$2.9228	$0.0693	-1.87%	12.94%
Natural gas (per million BTU)	$9.3220	$9.4170	-$0.0950	-7.71%	24.58%
Unleaded gasoline (per gallon)	$2.7567	$2.7243	$0.0324	5.37%	10.68%

Earnings season is coming

The first-quarter earnings season will start after Monday's close, when aluminum giant and Dow component Alcoa (AA, news, msgs) reports first-quarter earnings. Alcoa was up 1.2% on Friday to $39 and was up 12.4% for the week on stronger metals prices and takeover speculation.

Fellow Dow component General Electric (GE, news, msgs) will report on Friday.

Thomson Financial projects that first-quarter earnings for S&P 500 companies will fall 12% from a year ago with financial stocks reporting the bulk of the losses. Thomson sees profits for the sector falling 60% from a year ago. The energy sector will probably show a 28% profit gain. Also expected to show big profit declines: home builders and automakers.

A recession is here

The monthly jobs report -- the most carefully watched economic report of any month -- showed a decline of 80,000 jobs in March from February. The consensus estimate among economists was for the report to show a loss of 50,000. The larger number caused most bullish analysts to concede the domestic economy is in a recession.

"This report is telling us that the recession started awhile back, in December," Nigel Gault, chief U.S. economist at Global Insight, an economic consulting firm, told The New York Times. "It is not like we are starting this month. We're in it; we've been in it."

The national unemployment rate was up to 5.1% from 4.8% in February.

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To add to the gloom that the stock market ignored, February's job loss, originally estimated at 63,000, was revised to 76,000. That was the same job loss as January.

"The revisions are the real surprise in the report," John Silvia, chief economist for Wachovia, told CNNMoney.com. "If we had known it was anything like that, there would not have been any debate going on about whether we were in a recession. It's pretty stark."

Gains in the government, mining and food-services sectors were offset by losses in manufacturing, construction and services.

On Thursday, the Labor Department's weekly report showed an unexpected rise in jobless claims for the week ending March 29. Claims rose by 38,000 to 407,000, the highest level since September 2005, just after Hurricane Katrina.

Earlier this week, the ADP March jobs report showed a surprising 8,000 gain in private-sector nonfarm payrolls.

Continued: More write-downs at Citigroup may be ahead

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