Stocks can’t hold gains
The stock market ended a tumultuous week with a sharp decline Friday, retreating after two days of stunning gains amid speculation of more credit-market losses.
The Dow Jones industrial average fell 171 points but still managed to record its first weekly advance of 2008.
An index of financial stocks in the S&P; 500 slid 2.5% on Friday for the biggest drop among 10 industries. Thursday’s announcement by Societe Generale of a $7.2-billion loss on unauthorized trades spurred speculation of other surprise losses at financial firms.
“I’ve heard like three different rumors about a hedge fund blowing up,” said Thomas Garcia, head of trading at Thornburg Investment Management in Santa Fe, N.M.
The holiday-shortened week, which started with a 465-point drop in the Dow soon after trading opened Tuesday, suggested the market was trying to establish a bottom after weeks of sharp declines.
Investors had an initial burst of enthusiasm Friday, sending major indexes up more than 1% after upbeat profit reports from some big names and word of a possible buyout of a troubled bond insurer. But the advance proved short-lived.
“People may be looking to take some profits off the table in this volatile market,” said Scott Fullman, director of investment strategy for I.A. Englander & Co.
Despite the pullback, Wall Street’s tone Friday stood in contrast to the intensely dour mood that hung over the market when the week began. On Monday, when U.S. markets were closed for Martin Luther King Day, stocks in Asia and Europe plunged on fears of a precipitous slowdown in the U.S. economy. In an apparent effort to stave off a similar sell-off in the U.S., the Federal Reserve stepped in before the opening bell in New York on Tuesday with an emergency cut in its key interest rate.
The reduction of 0.75 of a percentage point to 3.5% helped shore up investors’ confidence and led stocks to end Tuesday well off their lows, although they still closed down. A day later, Wall Street had an astonishing about-face, with the Dow swinging more than 630 points and turning a sharp sell-off into huge gains. Stocks then extended their advance Thursday.
The Fed is widely expected to cut its benchmark rate again at next week’s meeting. Futures trading Friday indicated a 78% chance of a half-point cut to 3%, with a 22% chance of a quarter-point trim.
The Dow fell 171.44 points, or 1.4%, on Friday to 12,207.17. The average had been up more than 100 points in the early going.
Broader stock indicators also fell. The Standard & Poor’s 500 index fell 21.46 points, or 1.6%, to 1,330.61. The technology-heavy Nasdaq composite index fell 34.72 points, or 1.5%, to 2,326.20.
Declining issues outpaced advancers by about 3 to 2 Friday on the New York Stock Exchange.
Despite the huge moves during the week, stocks finished close to where they began.
For the week, the Dow added 108 points, or 0.9%, while the S&P; 500 rose 0.4%, the Nasdaq lost 0.6% and the Russell 2,000 gained 2.3%.
Yields on government bonds fell along with stock prices. The yield on the benchmark 10-year Treasury note fell to 3.56% from 3.71% late Thursday.
The dollar rose against other major currencies, and gold prices rose to another record. Near-term gold futures climbed $5 to $910.50.
Oil futures advanced $1.30 to $90.71 a barrel in New York.
JPMorgan Chase and Citigroup led bank shares lower after an analyst at Dresdner Kleinwort said Fortis, Belgium’s biggest financial company, faced additional write-downs on mortgage-backed securities. JPMorgan dropped $1.32 to $43.64. Citigroup fell 69 cents to $26.64.
City National fell $7.25, or 12%, to $52.75 after the Beverly Hills-based bank reported lower fourth-quarter earnings and said 2008 profit would be down 7% to 12%.
Shares of Fannie Mae and Freddie Mac sank as Republican senators were reported to be gearing up to resist a provision in the pending economic stimulus package that would raise the limit on the size of home loans that the two government-sponsored mortgage investors can buy.
Also, the Wall Street Journal said raising the limits could expose the companies to more credit risk.
Freddie Mac slipped $2.42, or 7.6%, to $29.58. Fannie Mae tumbled $2.39, or 7%, to $31.80.
Ambac Financial Group surged 14% shortly after the opening bell to $12.91 on news that billionaire investor Wilbur Ross was in talks to acquire the bond insurer. But the stock pulled back to close at $11.54, up 21 cents. In after-hours trading the shares slumped 7% to $10.73.
In other market highlights:
* Apple fell $5.59, or 4.1%, to $130.01, marking its fourth straight decline since the company spooked investors with a disappointing forecast. For the week, the iPod and Mac maker’s stock is down 19%.
* Microsoft closed down 31 cents at $32.94 after surging as high as $35. The software giant reported a 79% jump in profit for its latest quarter and raised its forecast for the rest of its fiscal year. The company cited the growing importance of its sales outside the U.S.
* Overseas, key stock indexes surged 4.1% in Japan and 6.7% in Hong Kong. Shares fell 0.8% in France and 0.1% in Britain and Germany.
