Stocks sink on weak GDP growth report
Stocks pulled back Friday after a government report stirred concerns that the economy might be slowing too much.
Investors have bid up stocks sharply in October on the belief that the economy is slowing, but not in a way that would threaten corporate profits and consumer spending. Investors are counting on a gradual slowdown to reduce the threat of inflation and persuade the Federal Reserve to lower short-term interest rates.
Although Wall Street expected Friday’s advance reading on gross domestic product from the Commerce Department to show slowing growth, the report underscored concern that a cooling housing market could spill over into other parts of the economy.
“I think that the market actually was poised for profit taking and consolidation,” said Quincy Krosby, chief investment strategist at Hartford Financial.
She said the GDP report gave investors an excuse to catch their breath after the recent run-up and called the pullback a healthy pause.
The Dow Jones industrial average was down 73.40 points, or 0.6%, at 12,090.26. The Dow Jones industrials had achieved a new high close in each of the previous four sessions and 13 of the previous 18 sessions.
Broader stock indicators also moved lower Friday. The Standard & Poor’s 500 index slipped 11.74 points, or 0.9%, to 1,377.34, and the tech-heavy Nasdaq composite index fell 28.48 points, or 1.2%, to 2,350.62.
Technology stocks retreated Friday afternoon after a report from Goldman Sachs warned of weakness in orders for computer parts.
The surprisingly weak initial report on gross domestic product, which also showed core inflation slowing more than expected, pushed benchmark yields to their lowest levels in more than three weeks, as traders bet that the Fed would not raise rates again and might even cut them in early 2007 to boost growth.
The benchmark 10-year Treasury note fell to 4.67%, from 4.72% on Thursday.
The central bank on Thursday left short-term interest rates unchanged, as expected, and offered a little-changed opinion on the health of the economy.
For the week, the major stock market indexes showed gains despite Friday’s decline. The Dow rose 0.7% for the week, while the S&P; gained 0.6% and the Nasdaq added 0.4%. Despite the overall advances in the market, the S&P; stands about 9.8% below its high close of 1,527.46 and the Nasdaq is even further off, at about 53%. All three indexes had peaked in early 2000 before plunging in response to the dot-com bust, recession and the aftermath of the 2001 terrorist attacks.
Subodh Kumar, chief investment strategist for CIBC World Markets, believes that the markets moved lower Friday as investors tried to balance expectations about the economy with Federal Reserve policy and oil prices, which have trended lower despite a modest rise Friday.
“The fact that there is a moderate pullback tells you that the overall market risk is not extreme,” he said.
In other market highlights:
* Crude oil futures rose 39 cents, to $60.75 a barrel, in New York trading.
* Highest-ever profit from Chevron gave a dose of good earnings news Friday. Chevron, which rose 18 cents to $67.68, reported that its third-quarter profit surged 40% to $5.02 billion, handily topping estimates. The year-ago quarter in part reflected costs tied to Hurricane Katrina.
* Microsoft fell 1 cent to $28.34 a day after the software company reported better-than-expected earnings and raised its forecast.
* Avon Products, the world’s largest door-to-door seller of cosmetics, lost 86 cents to $29.20. Third-quarter net income declined to 19 cents a share on increased costs for advertising and for firing workers. Analysts expected 24 cents.
* McAfee rose $1.54 to $28.36. The world’s second-biggest maker of security software said third-quarter profit was 36 cents a share, excluding some items, after it sold more programs to consumers and businesses. That topped the average 30-cent estimate of analysts surveyed by Thomson Financial.
