Downbeat Economic Data Slap Markets
Stocks fell in listless pre-holiday trading Friday after the government said economic growth slowed more than previously thought and Federal Reserve Chairman Alan Greenspan warned that the weakness could linger.
“You get a couple of reminders that the economy is still sloppy, and it doesn’t surprise us to see some profit taking,” said John Forelli, senior vice president at Independence Investment Associates Inc.
The New York Stock Exchange said it posted its slowest trading day of the year as investors and traders headed home early for a three-day weekend. The stock market will be closed Monday for Memorial Day.
Many traders locked in profits ahead of the long weekend, Forelli said. The stock market has climbed since early April on hopes that the Fed’s five steep interest rate cuts would spark an economic rebound by year’s end.
The Dow Jones industrial average lost 117.05 points, or 1.1%, to 11,005.37. Top retailer Wal-Mart Stores, down $1.69 at $51.20, and conglomerate General Electric, off $1.45 at $49.95, weighed on the blue-chip measure. Disney, another Dow component, was off 66 cents to $32.64 as its hoped-for summer blockbuster “Pearl Harbor” opened in movie theaters nationwide Friday.
The broader Standard & Poor’s 500-stock index declined 15.28 points, or 1.2%, to 1,277.89.
The Nasdaq composite index fell 30.99 points, or 1.4%, to 2,251.03. Cisco Systems, which fell 86 cents to $22.05, and chip maker Intel, which lost 11 cents to close at $29.10, led the tech-heavy index lower.
The Nasdaq said it had its second slowest day of the year, with about 1.38 billion shares changing hands, based on preliminary figures.
Year to date, the Dow is up 2%, the S&P; is off 3.2% and the Nasdaq is down 8.9%.
Chip equipment companies surrendered early gains. Brokerage Prudential Securities upgraded the group, saying orders for microchip-making machines are set for a recovery this fall. The companies include sector giant Applied Materials, which lost 71 cents to $53.71, and its rival KLA-Tencor, which fell 46 cents to close at $56.61.
Lucent Technologies, the most active stock on the NYSE, fell 13 cents to $9.40 amid talk that a takeover by French rival Alcatel is imminent. Some analysts said the deal, valued at about $33 billion, offers few synergies and could spark cultural clashes. Alcatel’s U.S.-listed shares fell $1.35 to $28.11.
The U.S. government said gross domestic product--the broadest measure of economic activity--grew at a rate of 1.3% in the first three months of the year, revised down from an initial reading of a surprisingly strong 2% growth reported a few weeks ago. Economists on average were expecting 1.5% growth.
Sales of existing homes in the U.S. fell 4.2% in April, raising concerns that the nation’s economic picture had cast a shadow over the housing market, the National Assn. of Realtors said. Also Friday, the Commerce Department reported that new orders for U.S. big-ticket manufactured goods plunged 5% last month to $184.74 billion, after a 2.2% rise in March.
“There is a light at the end of the tunnel, but the tunnel has just gotten longer,” said Richard Babson, president of Babson-United Investment Advisors.
Indeed, Greenspan said Thursday that the U.S. economy is at risk of weakening more than anticipated, a situation that could require additional rate cuts by the central bank.
However, the Fed chief emphasized that the aggressive action the central bank has taken this year has not yet made its full impact on the overall economy.
Upbeat consumer sentiment data from the University of Michigan did little to boost the market’s mood. The university’s key gauge of U.S. consumer sentiment rose in May, ending a sharp slide that began late last year.
Market Roundup, C4
