Rally Fades as Big Names Pull Down Wall St. Indexes
Stocks lost more ground Friday, with the broad market snapping a four-week winning streak, as a dour outlook from McDonald’s and other sour corporate news fueled worries that the U.S. economic recovery may be stalling.
In other markets, long-term bond yields fell further and the euro hit its highest level against the dollar since early 2000. Traders said those markets were reacting in part to the Federal Reserve’s surprise decision Wednesday to cut its key short-term rate from 1.75% to a 41-year low of 1.25%.
Friday’s corporate news helped persuade jittery investors to book more profits from a monthlong rally that had lifted major stock gauges 20% or more from five-year lows hit in early October.
“The overwhelming majority of fairly sophisticated investors say they do not trust the rally,” said Hugh Johnson, chief investment officer at First Albany Corp. “They believe the U.S. economy is heading for trouble.”
Meanwhile, market players gave mixed views about a U.N. resolution to disarm Iraq. Some said it had little effect on stocks. Others said it reminded Wall Street that U.S. military action would be more likely if Iraq President Saddam Hussein failed to comply.
“It’s weighing on the market temporarily,” said Ron Doran, director of institutional trading at C.L. King & Associates.” But it’s a long-term positive.... Whatever takes place, if there is disarming by himself or if we have to disarm him, there’s a solution and everyone’s on board.”
The Dow industrials fell 49.11 points, or 0.6%, to 8,537.13, although it managed to salvage a slim 0.2% gain for the week, extending its winning streak to five weeks.
The Nasdaq composite index dropped 17.43 points, or 1.3%, to 1,359.28. The Standard & Poor’s 500 index gave up 7.91 points, or 0.9%, to 894.74. Both finished fractionally lower for the week, ending four weeks of gains.
Friday’s market action, which saw losers outnumber winners by about 3 to 2 on Nasdaq and the New York Stock Exchange, was marked by sharp moves in some big-name stocks.
Dow component McDonald’s lost $1.52 to $17.79 after saying it would close about 175 restaurants worldwide and miss its 2002 earnings estimate as it continues to struggle with under-performing U.S. sales.
General Electric fell $1.01 to $25.10 after a J.P. Morgan analyst spooked investors when he said the firm may have to contribute as much as $5 billion in equity to shore up the balance sheet of GE Capital because the finance arm has a higher debt ratio than previously assumed.
Tenet plummeted $13.05 to $14.90 amid the hospital giant’s deepening problems. That slammed other hospital and HMO stocks as well. But an initial public offering from New York HMO WellChoice rose to $27.20 from its IPO price of $25.
Among supermarkets, Safeway sank $2.60 to $20 as the company forecast weaker results.
In currency and bond markets, traders appeared to view the Fed’s rate cut as a worrisome sign of a weak economy.
On Thursday, the 10-year Treasury note yield slid to 3.84% from 3.88%. The euro jumped to $1.013, up from $1.009 and the highest since early 2000, according to Bloomberg News.
“Investors can’t get excited about being in the U.S. dollar” with short-term rates so low, said Emeric Challier, who helps oversee $8 billion at Societe Generale Asset Management in Paris.
