- NEW YORK (Reuters) - Stocks
tumbled on Friday, ratcheting up losses for the fifth straight week after
negative outlooks on companies like General Electric Co. and tobacco giant
Philip Morris Cos. Inc. spurred selling.
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- Investors fleeing the stock market bid up prices for
safe-haven U.S. government debt. Treasury yields, which move in the opposite
direction of prices, ended at half-century lows.
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- The dollar fell, in sympathy with plummeting U.S. stocks.
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- "Weakness (in stocks) brings worry about the U.S.
economic situation and recovery," said Mark Thome, vice president
of foreign exchange at Fortis U.S.A.
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- During a whipsaw week, the Dow Jones industrial average
plunged to a four-year low and the Nasdaq Composite index hit its lowest
level in six years on worries about the economy and the market's relentless
losses.
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- "Institutions are still chronically overweight equities,
compared with fixed income, and the asset reallocation is still unraveling,"
said Dominic Konstam, head of interest-rate strategy at Credit Suisse First
Boston. "We reckon we are about two-thirds of the way through it."
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- The view that the Federal Reserve is likely to cut interest
rates by year-end also fortified the bond market.
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- The December Eurodollars contract has rallied to a closing
contract high of 98.41 from 98.325 a week ago, implying the market is fully
pricing in a quarter-percentage-point cut in the 1.75 percent Fed funds
rate by year-end.
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- "Federal Reserve officials are becoming more concerned
about the outlook," said Robert DiClemente, chief U.S. economist at
Salomon Smith Barney in a Friday note to clients. "We think the odds
favor an eventual half-point rate cut -- perhaps at the November meeting
-- in part as a spark plug for shifting (the economic) recovery out of
low gear."
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- Indicators out next week will be crucial both for the
U.S. economic outlook and the prospects for a Fed easing. Of particular
note will be the ISM survey of industry, figures on auto sales for September
and the monthly employment report.
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- Blue-chip stocks were hit hardest after analysts cut
earnings estimates on GE after scrutinizing its third-quarter numbers,
sending shares of the conglomerate down $1.91, more than 7 percent, to
$24.47.
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- Dow component Philip Morris, the world's No. 1 cigarette
maker, sagged 11 percent after slashing its full-year outlook. Philip Morris
slid $4.87 to $37.86.
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- Phone company SBC Communications Inc. added to the Dow's
woes, falling 8 percent after saying it will cut about 6 percent of its
work force. SBC lost $1.75 to $20.15.
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- "The only correct decision about the market in 2-1/2
years has been to sell," said Edward Hemmelgarn, president of Shaker
Investments, which oversees $2.2 billion in assets. "That's a tough
environment."
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- The Dow Jones industrial average sank 295.67 points,
or 3.7 percent, to 7,701.45, ending just shy of a four-year closing low
of 7,683.13 hit on Tuesday. The broader Standard & Poor's 500 Index
fell 27.58 points, or 3.23 percent, to 827.37, based on the latest available
data. The technology-laced Nasdaq Composite Index fell 22.45 points, or
1.84 percent, to 1,199.16.
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- For the week, the Dow dropped 3.6 percent, the S&P
500 fell 2.1 percent and the Nasdaq sagged 1.8 percent.
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- The latest U.S. economic data were a bit more upbeat
than expected, as were other economic reports released this week.
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- The final reading for the University of Michigan's consumer
confidence index saw a dip to 86.1 in September from 87.6 the month before,
while analysts had looked for 85.9.
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- The final estimate for second-quarter U.S. gross domestic
product growth saw a modest upward revision to 1.3 percent annualized from
1.1. percent, thanks to stronger exports.
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- But that was no match for the avalanche in the stock
market avalanche and bond prices soared.
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- While some analysts said the path of stocks and bond
yields downward would continue, others argued that bond prices were vulnerable
to a correction and that stocks offered value.
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- "The bond market is very vulnerable," said
Al Goldman, chief market strategist at A.G. Edwards & Sons in St. Louis.
"People who were smart or lucky enough to have bought bonds over the
last year as a safe haven ought to be selling them."
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- Calling Treasury yields "terribly unattractive,"
Goldman predicted asset reallocations out of bonds and into equities, based
on price-earnings ratios, the amount of money on the sidelines, and the
"extremely depressed" mood in the stock market, often a sign
that a market is near a bottom.
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- "Can stocks and bond yields go lower?" he said.
"Sure they can, but the risk-reward ratio is much more attractive
on the equity side."
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- Five- and 10-year U.S. Treasury yields, which move in
the opposite direction of prices, had their lowest weekly closes since
1958. Two- and 30-year securities had their lowest weekly closes since
the 1970s, when the maturities were first issued.
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- The 10-year note rose 30/32 to 105-27/32, pushing its
yield down to 3.66 percent from 3.77 percent.
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- December 10-year note futures rose 20/32 to 115-10.5/32,
piercing technical resistance at 115-3/32.
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- The five-year note advanced 18/32 to 102-16/32, taking
yields to 2.70 percent from 2.83 percent, while the 30-year bond climbed
25/32 to 110-26/32, yielding 4.68 percent from 4.73 percent at Thursday's
close.
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- At the short end, the two-year note rose a sharp 12/32
to 100-4/32, dragging yields to 1.80 percent from 1.99 percent, widening
the gap between two- and 30-year yields to 288 basis points from 274 earlier
in the week.
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- NYMEX crude oil futures rebounded as traders tracked
the movements of two new storms in the Caribbean and amid concerns over
a potential U.S. military strike against Iraq.
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- On the New York Mercantile Exchange, crude oil for November
delivery settled 13 cents higher at $30.54 a barrel, rising as high as
$30.75. In London, November Brent crude settled 1 cent lower at $28.88
a barrel, moving as high as $29.15.
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- COMEX December gold fell 60 cents to settle at $321.10
an ounce.
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- In London, the blue-chip FTSE-100 index rose 56.6 points,
or 1.5 percent, to finish at 3,907.2. In Europe, the FTSE Eurotop 300 index
edged up 0.04 percent to 859. In Tokyo, the benchmark Nikkei average soared
209.52 points, or 2.25 percent, to 9,530.44.
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