Stocks ended Friday's session with notable declines, adding to substantial losses from the previous session. Continued stresses within the financial sector along with rising oil prices kept the markets under pressure.
The price of oil extended a recent upward move, closing above $140 a barrel for the first time ever. On Thursday, OPEC President Chakib Khelil said in an interview on French TV that he expects prices to move to $150-170 a barrel during the summer months.
Investors worry that consumers will be forced to pare back on discretionary spending to pay for essentials like food and gas. With consumer spending making up two thirds of all economic activity, a decline in spending could have a significant negative impact on the economy.
Adding to the negative sentiment, Moody's Investors Service said it was reviewing Morgan Stanley's (MS) long-term debt ratings for a possible downgrade. The credit ratings agency said that the likely outcome of the review would be cut to a rating of A1 from its current Aa3 rating. An A1 rating is still considered investment grade.
Meanwhile, consumer sentiment fell to another 28-year low in June, signaling that Americans remain deeply pessimistic about the economy. The Reuters/University of Michigan Consumer Sentiment Index came in at 56.4, a slightly worse-than-expected result.
In one bright spot, personal income showed a substantial increase in the month of May, according to a report released by the Commerce Department on Friday, although the increase was largely due to the rebates sent out as part of the government's economic stimulus plan.
While the major averages moved well off of their intraday lows in afternoon trading, they still ended the day with notable declines. The Dow closed down 106.91 points or 0.9 percent at 11,346.51, the Nasdaq closed down 5.74 points or 0.3 percent at 2,315.63 and the S&P 500 closed down 4.77 points or 0.4 percent at 1,278.38.
After seeing some choppy trading earlier in the week, the losses in the past two sessions resulted in weekly losses for all three major averages. The Dow fell 4.2 percent on the week, while the Nasdaq and the S&P 500 posted weekly losses of 3.8 percent and 3 percent, respectively.
Bank stocks turned in some of the worst performances, as concerns about the financial sector's health continued to mount. The KBW Bank Index closed down 1.5 percent, setting an eleven-year closing low. The index has been trending lower for the past six weeks.
Within the bank sector, Washington Mutual (WM) and Wachovia Bank (WB) were two of the biggest losers. Washington Mutual closed down 4.7 percent, compared to a 4.1 percent decline by Wachovia.
The computer hardware sector also came under pressure, hurt by an 8.3 percent drop by Palm (PALM). The Amex Computer Hardware Index fell 1.6 percent, adding to a sharp loss posted in the previous session. With the decline, the index set a nearly two-month closing low.
The decline by Palm came after the company posted a fourth quarter loss. Excluding one-time items, the company reported a net loss of $0.22 per share, while analysts were looking for a loss of $0.18 per share.
Brokerage stocks saw significant selling pressure as well, with the Amex Securities Broker/Dealer Index falling 1.1 percent to set a two-month closing low. Real estate and tobacco stocks closed notably lower as well.
On the other hand, gold stocks turned in some of the best performances, boosted by a sharp rise in the price of the precious metal, finishing the session above $930 an ounce. The Amex Gold Bugs Index closed up 3.2 percent to set a two-month closing high.
Other resource stocks also benefited from higher commodity prices, including steel, natural gas and oil service stocks. The Amex Steel Index closed up 1.1 percent, the Amex Natural Gas Index closed up 1.2 percent and the Philadelphia Oil Service Index closed up 1 percent.
Most of the Dow components ended the session with substantial losses, sending the blue chip index sharply lower. Of the 30 stocks that make up the Dow, only 8 ended the day with any strength.
JP Morgan Chase (JPM) was one of the biggest decliners on the Dow, taking its cue from the financial sector. Shares of the investment bank ended the day down 3.5 percent. The stock has been trending lower for the past six weeks, falling to a two-year closing low.
Procter & Gamble (PG) also showed considerable weakness. The consumer goods maker closed down 2.8 percent, adding to a substantial loss posted in the previous session. With the loss, the stock closed at its worst level in well over a year.
Extending a recent downtrend, United Technologies (UTX) closed sharply lower as well. The stock fell 2.6 percent after seeing sharp declines in the previous three sessions. With the loss, the stock set a yearly closing low.
Other Dow components that showed significant weakness include Home Depot (HD), Coca Cola (KO) and Citigroup (C). Home Depot closed down 2.6 percent, Coca Cola closed down 2.6 percent and Citigroup closed down 2.4 percent.
Meanwhile, after announcing that its drug candidate telcagepant showed success in reducing migraines in a late stage clinical trial, Merck (MRK) showed considerable strength. Shares of the drug maker climbed 2.2 percent, setting a three-week closing high.
In overseas trading, the markets across the Asia-Pacific region saw significant weakness on Friday, with the overnight weakness on Wall Street generating some negative sentiment. Japan's Nikkei 225 index ended the session down 2 percent.
European stocks closed mixed amid concerns about the impact of record high oil prices. The French CAC 40 index and the German DAX index closed down 0.7 percent and 0.6 percent, respectively, while the U.K.'s FTSE 100 index closed up 0.2 percent.
Meanwhile, treasuries rose as investors looked to the safety in government backed bonds. The benchmark ten year note added to a strong gain posted in the previous session to set a three week closing high. The note moved higher throughout most of the day, although it pared some of its gain in the final hour of trading. Subsequently, the yield on the ten-year note closed down 4.3 basis points at 3.99 percent.
Next week will be a shortened week, with the major U.S. markets closed on Friday in observance of Independence Day. Investors will likely look to the Labor Department's monthly report on the employment situation for some guidance, while the Institute for Supply Management will release the results of its manufacturing survey.
In earnings news, H&R Block (HRB), Apollo Group (APOL), Constellation Brands (STZ) and Family Dollar (FDO) are all scheduled to report their quarterly results next week.
by RTT Staff Writer
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