Nasdaq Closer to Bear Market

Stocks fell for a second straight session Friday, driving the Nasdaq composite index and key indexes of smaller stocks closer to bear-market territory.

A disappointing earnings forecast from computer giant Dell pushed its shares down nearly 10%. Dell is one of the 10 biggest stocks on the Nasdaq market, and its slide helped drag the Nasdaq composite index down 19.03 points, or 0.9%, to 2,020.39 -- its lowest close since May 2005.

Nasdaq now is down 14.8% from its five-year high of 2,370.88 reached on April 19.

One classic definition of a bear market is a drop of 20% or more in major stock indexes.

Blue-chip indexes posted only modest losses Friday, with the Dow Jones industrial average losing 59.72 points, or 0.6%, to 10,868.38.

The Standard & Poor’s 500 index gave up 8.84 points, or 0.7%, to 1,240.29.

But gauges of small and mid-size stocks fell below the lows they reached in mid-June, surrendering the last of the bounce they experienced late in June and early this month.

The Russell 2,000 small-stock index sank 11.67 points, or 1.7%, to 671.94. That left it below the mid-June low of 672.72, and down 14.1% from its record high reached May 5.

The Russell index now is negative for the year to date, off 0.2%.

Analysts said Friday’s losses show that investors remain on edge about prospects for the economy, given near-record oil prices and increasing signs of a slowdown in the housing market.

Near-term oil futures in New York edged up 16 cents to $74.43 a barrel, although the price was down $2.60 for the week.

The violence between Israel and Hezbollah militants in Lebanon also is exacerbating investors’ worries.

Losers topped winners by 2 to 1 on the New York Stock Exchange and by nearly 3 to 1 on Nasdaq, in active trading.

“The market’s becoming very, very touchy, very news sensitive,” said Hugh Johnson, chief investment officer at Johnson Illington Advisors. “If it’s good news, the market goes up. If there’s even some bad news, the market goes down. And it’s because politics, economics and earnings are all dark clouds hanging over this market.”

The global slide in stocks from mid-May to mid-June was fueled by fears that the Federal Reserve would continue to raise short-term interest rates to damp inflation.

Markets then rallied off the June lows on renewed hope that the Fed was nearly done tightening credit.

This week, stocks surged Wednesday after Fed Chairman Ben S. Bernanke, testifying before Congress, said he expected economic growth to moderate. That boosted expectations that the central bank was almost finished raising rates.

On Thursday and Friday, however, some investors apparently were worrying that the economy might slow too much and depress corporate earnings.

For now, companies in the blue-chip Standard & Poor’s 500 index are expected to post overall operating earnings growth of 13.6% in the second quarter compared with a year earlier, according to analyst estimates compiled by Thomson Financial.

But “stocks are telling us the great earnings can’t be repeated,” said David Nelson, chief executive of DC Nelson Asset Management in New York. “The fear is that the American consumer is slowing down and that if the American consumer slows down, this will reverberate throughout the world.”

Among Friday’s market highlights:

* Blue-chip indexes remained above their June lows. The Dow, for example, is 1.5% above its level on June 13, when it bottomed in the spring sell-off.

For the week, the Dow rose 1.2% and the S&P; 500 added 0.3%, but Nasdaq lost 0.8% and the Russell 2,000 fell 1.4%.

Bigger stocks are holding up better than smaller issues because some investors are seeking relative safety in larger companies, analysts say.

The Dow is down 6.6% from its six-year high reached on May 10, less than half the drop in small-stock indexes from their spring highs.

* Dell tumbled $2.19, or 9.9%, to $19.91 after its downbeat forecast. Also, chip maker Advanced Micro Devices plunged $3.39 to $18.26 on fears that Dell’s forecast means computer demand is slipping.

After the market closed Bloomberg News reported that AMD might buy computer-graphics chip maker ATI Technologies for about $5.5 billion.

* Microsoft helped offset some of Dell’s damage to the Nasdaq composite index. The software giant rose $1.02 to $23.87 after it said it would buy back as much as $40 billion of its shares.

* Commodity producers slumped on concern that a slowing economy may reduce demand. U.S. Steel led declines among steelmakers, falling $4.11 to $58.70.

* In the industrial-equipment sector, Caterpillar fell 73 cents to $68.35 despite reporting a 38% rise in quarterly earnings and raising its profit forecast for the year to a range of $5.25 to $5.50 a share from a previous range of $4.85 to $5.20.

* Treasury bond yields were little changed Friday. The 10-year T-note yield ended at 5.04%, up from 5.03% on Thursday but still near a six-week low. The yield was 5.06% a week ago. Some investors have been buying bonds, betting that all interest rates will decline if the economy continues to slow.