Stocks slide again to cap bad week

Times Staff Writer

The stock market closed out a dismal week with another sharp loss Friday as investors took out their growing economic angst on formerly high-flying technology stocks.

Stocks slumped at the opening bell after bad news from banking giant Wachovia Corp. and tech leader Qualcomm Inc., rallied moderately at midday, then were hit by a bout of furious selling in the final half-hour.

The Dow Jones industrial average plunged 223.55 points, or 1.7%, to 13,042.74.

The tech-heavy Nasdaq composite index was battered for a second day, falling 68.06 points, or 2.5%, to 2,627.94.


For the week, the Nasdaq sank 6.5%, the Dow dropped 4.1% and the Standard & Poor’s 500 was down 3.7%.

The Dow still is up 4.7% for the year, but it has tumbled 7.9%, or more than 1,100 points, from its all-time high reached Oct. 9.

The blue-chip index now is fewer than 200 points from the low it hit in mid-August, in the first wave of selling tied to soaring defaults on mortgages and a widening credit crunch.

Unlike in recent months, when financial-company shares led the market down, some of the hardest-hit stocks in recent days have been in sectors that investors previously thought would hold up despite the banking system’s problems -- particularly tech and heavy industry.


Tech stocks have led the market this year on the belief that robust international sales and consumer enthusiasm for wireless products would help the sector withstand economic weakness.

But some investors now fear a far more severe U.S. downturn that could hammer tech profits as consumers and businesses rein in spending.

“There’s just an incredible amount of fear that the economy is falling apart,” said Jim Paulsen, chief investment strategist at Wells Capital Management in Minneapolis. “People are saying, ‘I know economic weakness is coming, the [Federal Reserve] is behind the curve and I’m getting out of the way.’ ”

Late Thursday, Qualcomm, which makes chips for mobile phones, disappointed investors with an annual profit forecast that fell short of expectations. That followed a weaker-than-expected revenue forecast the day before from Cisco Systems.


Qualcomm fell $1.66, or 4.2%, to $38.10 on Friday and Cisco slid $1.05 to $28.58. The damage spread across the sector, with IBM tumbling $5.86 to $100.25.

Among industrial names, Deere slumped $4.88 to $153.03, 3M lost $3.32 to $79.51 and U.S. Steel was down $4.02 to $94.06.

As for retailers, Macy’s fell $1.40 to $28.49, Target was off $2.51 to $56.19 and J.C. Penney lost $3.38 to $46.89.

Worries about the economy were reinforced by a survey showing consumer confidence slipping to a two-year low as Americans face the pain of rising gasoline prices and drooping home values.


In commodity trading, oil resumed its rally, adding 86 cents to $96.32 a barrel.

Investors’ nervousness also was evident in the bond market. Yields on Treasury securities fell sharply as investors sold stocks in favor of the perceived safety of government securities.

The 10-year Treasury note yield ended at 4.22%, down from 4.29% on Thursday and the lowest in two years. The yield on the two-year T-note fell to 3.40% from 3.49%.

On the flip side, investors demanded sharply higher yields on corporate junk bonds. The average yield on an index of 100 junk issues jumped to 8.35%, up from 8.27% on Thursday and the highest since Aug. 22.


Investors took no solace from Thursday’s congressional testimony of Fed Chairman Ben Bernanke, who said the economy would slow noticeably this quarter but would pick up steam early next year.

Some financial stocks finished Friday with minor gains -- despite a fresh round of write-offs related to faltering sub-prime-related assets -- as investors scrounged for bargains.

Wachovia edged up 35 cents to $40.65 despite saying it would have to set aside more reserves for loan losses. Bank of America, JPMorgan Chase and E-Trade Financial also later warned of worsening credit-market conditions.

The huge write-offs at Wall Street firms are compounding concerns about the economic outlook because they could drive lenders to cut back further on extending credit.


“There’s a worry that the balance sheets of lenders have become so damaged that it will lead to a slowdown in lending, and for an economy that grows on money and credit, that’s not good news,” said Hugh Johnson, investment chief at Johnson Illington Advisors in Albany, N.Y.