A big test for the stock market on Friday was whether the major indexes could finish higher on the day -- as they had for the past six Fridays.
The market failed the test, and now there are worries that the rally that erupted in March has stalled. Stocks may face some pressure next week as a result.
A higher finish on Friday would have signaled continued investor confidence in the market and in an economic recovery taking hold sooner rather than later.
The Dow Jones industrials ($INDU) fell 63 points, or 0.8%, to 8,269. The Standard & Poor's 500 Index ($INX) was off 10 points, or 1.1%, to 883, and the Nasdaq Composite Index ($COMPX) was off 9 points, or 0.5%, to 1,680.
The Nasdaq-100 Index ($NDX.X), which tracks, the largest Nasdaq stocks, closed down 5 points, or 0.3%, to 1,355.
The market decline meant that the Nasdaq Composite didn't see a 10th week of gains. The Nasdaq ended the week with a 3.4% decline, its first weekly drop since the week of March 6, just before the big market rally erupted.
The Dow fell 3.6% for the week, with the S&P 500 off 5%. Their losses would be only their second since the week of March 2.
Bank stocks moved lower after FDIC Chairman Sheila Bair told Bloomberg Television that the government may force out some underperforming managements.
Stock Charts (Year)
Bank of America
FirstEnergy
The declines came despite the ability of financial companies to sell upwards of $30 billion in stock and debt this week and reports that Goldman Sachs (GS, news, msgs) and JPMorgan Chase (JPM, news, msgs) may be the first banks to repay money taken under the government's Troubled Asset Rescue Program.
JPMorgan, however, fell 1.8% to $34.91. Goldman Sachs was up 0.6% to $134.40.
In addition, energy shares fell back when crude oil fell to $56.34, a decline of 3.9% from Thursday. Traders worried that continued economic stress would depress global demand, even in China.
Exxon Mobil (XOM, news, msgs) was off 1% to $69.11. Chevron (CVX, news, msgs) was down 2% to $65.88.
Moreover, FirstEnergy (FE, news, msgs), an Ohio utility, announced that it would get less money than expected from an auction of power to industrial customers. Its shares fell 9.6% to $36.47, the third-worst loss among S&P 500 stocks.
Only six Dow stocks were higher today, led by Alcoa (AA, news, msgs), up 3.3% to $9.03. In addition, 113 S&P 500 stocks were higher, along with 37 Nasdaq-100 stocks.
| Close for week | Wk. ago close | % chg. | 2009 YTD chg. | |
|---|---|---|---|---|
Dow Jones Industrial Avg. | 8,268.64 | 8,574.65 | -3.57% | -5.79% |
S&P 500 Index | 882.88 | 929.23 | -4.99% | -2.26% |
Nasdaq Composite Index | 1,680.14 | 1,739.00 | -3.38% | 6.54% |
Russell 2000 Index | 475.84 | 511.82 | -7.03% | -4.73% |
Crude oil per barrel | $56.34 | $58.63 | -3.91% | 26.32% |
10-yr. Treasury yield | 3.12% | 3.29% | -0.17% | 39.17% |
Gold per troy ounce | $931.30 | $914.90 | 1.79% | 5.31% |
Housing starts, Hewlett-Packard, Home Depot, Lowe's
Next week starts quickly but should end quietly because of the Memorial Day weekend.The market's toppiness should be an issue. The Dow had finished May 8 up 31% from its March 9 closing low, with the S&P 500 and Nasdaq both up 37%.
By the end of this week, the gains had been trimmed to 26.3%, 30.5% and 32.4%, respectively.
The S&P 500, which had gone positive for the year on May 4, ended the week 2.3% in the red.
The index also dropped below its 10-day moving average on Tuesday for the first time since April 1 -- and stayed there.
Stock Charts (Year)
Lowe's
Lowe's
Bears, however, believe the market could test its March lows.
It's within that context that investors will have to assess earnings due from a number of companies including home improvement chains Lowe's (LOW, news, msgs) and Home Depot (HD, news, msgs) on Monday and Tuesday.
Home Depot and Lowe's will offer hints on consumer confidence and whether the housing market has bottomed.
The Lowe's and Home Depot reports will feed into the Commerce Department's Tuesday report on housing starts. Starts are expected to come in at a seasonally-adjusted rate of 520,000 units, up slightly from March but still down 77% from their January 2006 high.
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Dow component Hewlett-Packard (HPQ, news, msgs) reports fiscal-second quarter profits after Tuesday's close. A bullish report could reverse the market's negative sentiment. Analysts expect the company to report earnings of 86 cents a share on revenue of $27.5 billion. Both would be down slightly from a year ago.
The stock was up 1% for the week, one of just six Dow stocks that finished the week higher.
Target (TGT, news, msgs) and construction-and-farm-equipment maker Deere (DE, news, msgs) report on Wednesday.
Lastly, the Federal Reserve's minutes from its April meeting will offer signals on how the central bankers view the economic slump.
GM puts dealers on the chopping block
Like Chrysler Group, General Motors (GM, news, msgs) believes its dealer roster is too large and unwieldy to compete in a difficult auto market.It hopes to cut 2,369 dealerships, or 40% of the total of 5,969, by the end of 2010.
The letter to 1,100 "underperforming and very small sales volume" dealerships starts the process. The letters told the dealers that GM "does not see them as a part of its dealer network on a long-term basis," the automaker said in a statement Friday.
And the company wants to help the group prepare for the end of their relationship.
"Long term, GM should have fewer, healthier dealers, maintaining GM's current high customer satisfaction ratings, with more sales per outlet," said Mark LaNeve, GM's vice president of sales service and marketing.
Shares of GM slumped 6 cents, or 6.1%, to $1.09 on the news. Rival Ford Motor (F, news, msgs) was 6.4% to $5.49.
The affected GM dealers hold about 120,000 vehicles worth about $2.5 billion, Bloomberg News reported.
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Chrysler said Thursday that it wants to close 789, or about 25%, of its dealerships across the U.S.
Meanwhile, GM is close to reaching an agreement with the United Auto Workers union that would cut labor costs by more than $1 billion per year, The Wall Street Journal reported Friday. The agreement would also sharply reduce GM's contribution to the union's health care and retirement funds.
GM has received $15.5 billion in aid from the Treasury, and it must complete a restructuring plan by June 1 in order to avoid bankruptcy.
CEO Fritz Henderson on Monday said that bankruptcy for the automaker has become "more probable." GM also confirmed Monday that six top executives, including Vice Chairman Bob Lutz and North America President Troy Clarke, sold all of their holdings in the company, according to Securities and Exchange Commission regulatory filings.
| Fri. | Thur. | Chg. | Month chg. | YTD chg. | |
|---|---|---|---|---|---|
Crude oil (NYMEX) (per barrel) | $56.34 | $58.62 | -$2.28 | 10.21% | 26.32% |
Heating oil (per gallon) | $1.4188 | $1.4947 | -$0.0759 | 7.92% | 0.93% |
Natural gas (per million BTU) | $4.0980 | $4.2920 | -$0.1940 | 21.49% | -27.11% |
Unleaded gasoline (per gallon) | $1.6806 | $1.7237 | -$0.0431 | 14.00% | 66.69% |
A little hope from New York manufacturing
The economic news Friday offered a little hope that the economy isn't getting worse.The Consumer Price Index for April was unchanged, the Labor Department reported Friday, following a decline of 0.1% in March.
Core CPI, which strips out food and energy, rose 0.3%. This proved worrisome to some investors who used it as a reason to buy gold on Friday. Gold jumped $2.90 an ounce to $931.30 and finished the week up 1.8%. Gold is up 5.3% this year.
As important, the Empire State manufacturing survey for May, from the Federal Reserve Bank of New York, improved to a reading of negative 4.55 in May from a reading of negative 14.1 in April. It was the highest reading since August.
The index is compiled from surveys of 200 manufacturers in New York. Negative readings indicate economic contraction; the index was at 28 at the beginning of 2008. It plunged to negative 40 at the end of that year but has clawed its way back up steadily.
"The improvement in this early read of manufacturing activity is an encouraging sign that the contraction in the sector continued to moderate during the month," Nomura Securities chief economist David Resler wrote clients Friday.
He added an important caveat, however: Companies associated with the auto industry still face major difficulties.
Industrial production, from the Federal Reserve, showed a decline of 0.5%, after a revised 1.7% drop in March. It was the fifth straight month of output decline.
And the big one: The University of Michigan consumer sentiment index for May rose to 67.9, up from a reading of 65.1 in April.
While the reading is an improvement, it is still not great: The index was at 96.9 in January 2007. The index slumped to a reading of 55 in November 2008.
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The market's mixed signalsUpcoming earnings reports from Target, Gap, TJ-Maxx owner TJX and Hewlett Packard should give investors a better idea of whether stocks deserve their recent rise, says MSN Money's Catherine Holahan.
Trucking company wants bailout funds
The biggest trucking company in the U.S. is asking for a federal handout.YRC Worldwide (YRCW, news, msgs) plans to ask the Treasury Department for $1 billion in Troubled Asset Relief Program funds to help pay for its pension obligations, the company said Friday. The costs are estimated to be about $2 billion over the next four years.
By asking for TARP funds, CEO William Zollars hopes to "get the conversation started," he said late Thursday.
But one expert was skeptical.
"My experience dealing with Treasury is that with TARP funds they are relatively narrow in how they view things," Frank Bonaventure Jr., a banking lawyer, told The Wall Street Journal. "They have not been very expansive in terms of how it is applied and what industries could get it."
In January, the company's unionized workers agreed to a 10% pay cut in exchange for a 15% stake in the company.
Shares of YRC Worldwide slumped 9.2% to $2.97 Friday, the worst performance of the 20 stocks in the Dow Jones Transportation Average ($DJT). The average was up 0.6% to 3,053.
Life insurers to receive TARP funds
After months of asking, life insurance companies are getting the green light to receive Troubled Asset Relief Program funds, the Treasury Department said late Thursday.Companies like Prudential Financial (PRU, news, msgs) and Allstate (ALL, news, msgs) needed cash during the recession, as the downturn pressured the value of corporate debt and investments that insurers held to back policies.
"If you had some of these companies, the bigger ones like Hartford, go into a spiral, that would just cause another round of panic," Robert Haines, an analyst at CreditSights, told Bloomberg News. "I don't like the idea of the government getting involved with these companies. You're making to an extent a deal with the devil, but your options are really limited at this point."
One insurance company, Ameriprise Financial (AMP, news, msgs) said it won't take any funding from the Treasury. Ameriprise was up 1.4% to $25.40.
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J.C. Penney profit falls; investors cheer Nordstrom
J.C. Penney (JCP, news, msgs) Friday reported its seventh straight profit decline.The department store chain said it earned $25 million, or 11 cents per share, in the first quarter, a 79% plunge from the $120 million, or 54 cents per share, it earned in the same quarter last year. Revenue fell nearly 6% to $3.88 billion.
The results beat expectations of a nickel per share.
Stock Charts (Year)
J.C. Penney
Nordstrom
Shares fell 0.4% to $26.54 Friday.
But investors were pleased with Nordstrom's (JWN, news, msgs) report.
Yes, the department store chain posted a drop in first-quarter profit late Thursday, but the company boosted its 2009 forecast, sending shares up 7.8% to $22.58 -- tops among S&P 500 stocks.
Nordstrom earned $81 million, or 37 cents per share, down from the $119 million, or 54 cents per share, the company earned in the same period in 2008. Excluding charges, Nordstrom would have earned 31 cents per share, topping Wall Street's estimate of 26 cents per share.
Revenue fell 9.2% to $1.71 billion.
The company increased its outlook for the full year, saying it expects to earn between $1.25 and $1.50 per share, indicating some optimism for the luxury retail market. Nordstrom had previously forecast 2009 earnings of between $1.10 and $1.40 per share. The consensus estimate is for $1.25 per share.
Andrew Rosenbaum contributed to this report.
| Fri. | Thur. | Chg. | Month chg. | YTD chg. | |
|---|---|---|---|---|---|
Treasurys | |||||
13-week Treasury bill | 0.155% | 0.155% | 0.000 | 24.00% | 34.78% |
5-year Treasury note yield | 1.983% | 1.966% | 0.017 | -1.69% | 27.85% |
10-year Treasury note yield | 3.123% | 3.107% | 0.016 | -0.03% | 39.17% |
30-year Treasury bond yield | 4.083% | 4.066% | 0.017 | 0.96% | 51.73% |
Currencies | |||||
U.S. Dollar Index | 83.150 | 82.370 | 0.780 | -1.92% | 1.22% |
British pound in dollars | $1.5230 | $1.5223 | 0.0007 | 2.99% | 3.37% |
Dollar in British pounds | £0.6566 | £0.6569 | -0.0003 | -2.90% | -3.26% |
Euro in dollars | $1.3552 | $1.3641 | -0.0089 | 2.43% | -3.27% |
Dollar in euros | € 0.7379 | € 0.7331 | 0.0048 | -2.37% | 3.38% |
Dollar in yen | 95.05 | 95.95 | -0.90 | -3.53% | 4.85% |
Canadian dollar in U.S. dollars | $0.852 | $0.854 | -$0.0028 | 1.65% | 4.12% |
U.S. dollar in Canadian dollars | $1.175 | $1.171 | $0.0046 | -1.56% | -3.96% |
Commodities | |||||
Gold | $931.30 | $928.40 | $2.90 | 4.50% | 5.31% |
Copper | $2.0175 | $2.0270 | -$0.01 | -1.47% | 43.09% |
Silver | $14.0100 | $14.0400 | -$0.03 | 13.67% | 24.30% |
Corn | $4.1725 | $4.2825 | -$0.11 | 5.30% | 2.52% |
Crude oil (NYMEX) (per barrel) | $56.34 | $58.62 | -$2.28 | 10.21% | 26.32% |
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