Fed Chief Deflates Wall St.
U.S. stocks on Friday had their biggest drop in at least four weeks as Federal Reserve Chairman Alan Greenspan sounded a warning over the nation’s spiraling trade deficit, and as oil resumed its climb.
The Fed chief said the economy was resilient thus far, but that foreign investment in the United States could wane should the deficit continue to widen and the dollar remain weak.
After his comments, the dollar fell to its lowest level in more than four years against the yen and lost ground against the euro. His warning also triggered a jump in Treasury bond yields.
Gold hit a fresh 16-year high, rising $4.20 to $446.80 an ounce. And shares of homebuilders and financial companies fell on fears that higher borrowing costs would hurt their revenues.
The Dow Jones industrial average sank 115.64 points, or 1.1%, to 10,456.91. It was the biggest single-session point drop for the Dow since Sept. 22.
Broader stock indicators also finished sharply lower. The Standard & Poor’s 500 lost 13.21 points, or 1.1%, to 1,170.34 and the Nasdaq composite slid 33.65 points, or 1.6%, to 2,070.63.
Losers topped winners by more than 2 to 1 on the New York Stock Exchange and on Nasdaq.
Friday’s performance pushed the major indexes to their first weekly loss after three straight weeks of gains, halting the post-election rally.
For the week, the Dow fell 0.8%, the S&P; 500 shed 1.2% and Nasdaq gave up 0.7%.
Most analysts, however, said the week’s trading, and especially Friday’s losses, were a pause in a still-positive market.
“Today is more of a blip on the screen, with people using Mr. Greenspan’s comments as an excuse to take some profits,” said Stewart Freeman, chief equity strategist for A.G. Edwards & Sons. “We’re exiting a period of uncertainty with the elections and terrorism and worries about slowing profit growth, and I think we’re set up nicely to continue upward after this.”
In addition to the Fed chairman’s comments, markets were pressured by oil prices, which jumped anew on concerns that cold weather in Europe would attract heating-oil cargoes from the United States -- where supplies already are unusually tight.
Near-term crude futures in New York surged $2.22 to $48.44 a barrel, the biggest one-day jump since June. 1. For the week oil gained $1.12 a barrel.
In other market highlights:
* The dollar fell to 103.08 yen in New York from 104.09 on Thursday. The euro rose to $1.301 from $1.297. The European currency has set five record highs against the dollar in the last two weeks.
* Bond yields shot up on Greenspan’s comments that investors who had not hedged against higher interest rates were “desirous of losing money.” The yield on the benchmark 10-year Treasury note rose to 4.21% from 4.11% on Thursday. The two-year T-note surged to 2.92% from 2.84%, nearing the two-year high of 2.93% reached in June.
“He’s telling people rates are going to keep going higher and the dollar is going to keep going lower,” said Scott Gewirtz, co-head of U.S. Treasury trading at Deutsche Bank Securities.
* Drug stocks fell as investors digested testimony from a Senate hearing Thursday. A Food and Drug Administration official told the panel that five drugs -- including Pfizer’s Bextra -- may pose health risks. Pfizer slipped 54 cents to $27.23, Merck shed 24 cents to $27.12 and Eli Lilly lost $1.18 to $55.22.
* An index of financial stocks in the S&P; 500 fell 1.6% amid fears that the Fed would continue to push up its key short-term rate, now 2%. Citigroup slid 76 cents to $45.15; Morgan Stanley lost $1.32 to $52.26.
* Homebuilders slumped on the prospect of a decline in home sales caused by higher borrowing costs. Centex lost $1.06 to $54.15, Pulte Homes shed $1.64 to $56.37 and KB Home retreated $1.98 to $87.30.
* Nike lost $2.50 to $82.50. The firm said late Thursday that co-founder Phil Knight would step down as chief executive.
* On the plus side, investors snapped up energy stocks and gold-mining issues. And Walt Disney rose 29 cents to $26.66 on the heels of its quarterly earnings report.
* Sirius Satellite Radio jumped 45 cents, or 9.5%, to $5.17. The subscription-radio company announced after the market closed Thursday that former Viacom President Mel Karmazin would be its new CEO.
