GDP Figures Weigh Down Stock Indexes
Disappointing growth in the nation’s gross domestic product pushed stocks lower Friday even as investors welcomed a $53-billion union of Procter & Gamble and Gillette. Despite the losses, the major indexes eked out the first winning week of 2005.
While investors were cheered by P&G;’s bid for Gillette and a strong earnings report from Microsoft, surprisingly weak economic data robbed the markets of any buying momentum. The Commerce Department reported that the GDP -- the value of all goods and services produced in the United States -- rose at an annual rate of 3.1% in the fourth quarter, the lowest gain in seven quarters. Economists had expected a 3.5% rise.
With elections in Iraq on Sunday, a Federal Reserve meeting beginning Tuesday and the Labor Department’s monthly job creation report to follow on Friday, investors used the GDP figure as another reason to sell stocks.
“The thought is that the GDP was a disappointment, but I don’t know if anybody really cares about GDP. It’s not the end of the world,” said Brian Pears, head equity trader at Victory Capital Management in Cleveland. “This market has been in a very strong bearish trend for the entire year, such as it is.”
The blue-chip Dow Jones industrial average fell 40.20 points, or 0.38%, to 10,427.20. Broader stock indicators also gave ground. The Standard & Poor’s 500 index was down 3.19 points, or 0.27%, to 1,171.36, and the Nasdaq composite lost 11.32 points, or 0.55%, to 2,035.83.
Nonetheless, the major indexes were positive for the week -- barely. The Dow rose 0.33%, the S&P; 500 was up 0.3%, and Nasdaq climbed 0.08%. That reversed a three-week slide for all three indexes.
Wall Street had expected the economy to slow somewhat from the 4% annual pace posted in the third quarter of 2004, but Friday’s GDP reading showed far more of a slowdown than analysts had predicted. Gross domestic product grew at an annualized 3.1% pace in the fourth quarter, under forecasts of 3.5%.
The slowdown, however, tempered concerns that the Federal Reserve might have to raise interest rates at a faster pace. As a result, the yield on the benchmark 10-year U.S. Treasury note fell to 4.14% from 4.21% on Thursday.
The Federal Reserve, scheduled to meet Tuesday and Wednesday, is widely expected to raise the nation’s benchmark interest rate to 2.5% from the current 2.25%. Although there have been concerns about rising prices and inflation, slower economic growth could keep the Fed from a more aggressive rate policy.
In other markets highlights:
* Crude oil fell $1.66 to $47.18 a barrel in New York trading, on speculation that the Organization of the Petroleum Exporting Countries would not cut production at its meeting Sunday.
* Procter & Gamble slid $1.17 to $54.15 in reaction to its bid for Gillette, which surged $5.92 to $51.60.
* Microsoft edged 7 cents higher to $26.18 after its earnings announced late Thursday surpassed Wall Street’s profit forecasts by 2 cents a share.
* Merck plunged $3.16 to $28.02 after a federal court ruled that the drug maker would lose patent protection on Fosamax, the company’s second-best-selling drug, in 2008 instead of 2018. The Securities and Exchange Commission also announced a formal probe into the company’s marketing of the discredited arthritis drug Vioxx.
* Boeing fell $1.05 to $49.92 despite scoring a major coup over rival Airbus with a $7.3-billion deal to provide six Chinese airlines with 60 of the company’s new 7E7 -- renamed the 787 -- Dreamliner jets.
