U.S. Stocks Fall Sharply On Earnings, Credit Markets Concerns
NEW YORK (MarketWatch) -- Stocks on Friday headed to close the week with losses as investor enthusiasm wilted under a two-pronged storm that included disappointing earnings from Google Inc. and Caterpillar Inc., and Citigroup Inc.-fueled anxiety about available credit for corporate buyouts.
"It's a combination of credit concerns spilling over into the stock market and high-profile earnings disappointments," said Peter Bookvar, equity strategist at Miller Tabak. "The continued breakdown in the financials can no longer be ignored by the rest of the market."
The Dow Jones Industrial Average was down 109 points to 13,91, as 25 of its 30 components fell.
While the meltdown in subprime mortgage market has been the most publicized source of jitters in credit markets recently, concerns are growing about risky loans everywhere, including those that have helped fuel a historic boom in private-equity buy-outs.
Citigroup on Friday joined the ranks of banks warning of the possibility it could be stuck holding leveraged loans for corporate buyouts. The world's largest bank was unable to sell debt to investors on four deals in the second quarter, leaving it holding so-called bridge loans on its balance sheet and taking a hit on revenues.
Shares of Citi, which had opened higher, were down 0.4%, while shares of J.P. Morgan dropped 1.5% and Bank of America declined 1.9%. Wachovia Bank , whose earnings also topped estimates, fell 2.9%.
Among Dow components, Caterpillar Inc. lost 5.8% after posting a 21% decline in profits on lower sales of truck engines and weakness in the construction market.
"Caterpillar in particular is a concern for investors, it had very strong momentum, along with many industrials, for some time now," said Mike Malone, trading analyst at Cowen & Co.
The S&P 500 fell 13 points to 1,540, while the Nasdaq Composite eased 24 points to 2,695.
Trading volumes had nearly 1.5 billion shares exchanged on the New York Stock Exchange and almost 1.9 billion trading hands on the Nasdaq. Declining issues topped gainers by more than 3 to 1 on the NYSE and by roughly the same ratio on the Nasdaq.
By sector, transportation , computer technology , and oil stocks were among the numerous arenas on the decline, while hardware stocks , multimedia , and Internet stocks led advancing.
Techs fall
Google dipped 4.8%. The Internet-search giant said quarterly profit growth rose 28% but still fell short of Wall Street's expectations.
And Microsoft Corp. fell 1.4%, after the software giant posted in-line profit growth after several quarters of above-expected growth.
On Thursday, the market advanced, helping send the Dow to its first-ever close above 14,000, led by upbeat earnings from tech firms, including International Business Machines .
Bad credit
Credit markets across the globe sold off, boosting safe-haven flows into government bonds, amid concerns that the era of risk-free lending is coming to an end, in part due to the meltdown in the U.S. subprime mortgage market.
On Friday, S&P downgraded a number of European collateralized debt obligations, while JP Morgan issued a note predicting that problems associated with subprime will get worse.
In a speech Friday, St. Louis Fed President William Poole said financial markets have dealt "harshly but fairly" with banks, hedge funds and other investors who invested heavily in the subprime securitized mortgage market.
Financial shares had taken another hit, however, after Standard & Poor's downgraded more mortgage-backed securities and Federal Reserve Chairman Ben Bernanke warned of $100 billion in losses from subprime mortgage defaults.
China hike
Adding to global concerns, China's central bank on Friday hiked interest rates by 0.27%. But the move came a day after China said its growth in the second quarter was a whopping 11.9%.
"Wit global growth continuing to explode, our lower dollar making our exports more competitive, and with an estimated 40% of S&P revenues coming from overseas, large multinational companies are [...] leading the market higher," said Cantor Fitzgerald's Pado.
Other markets
The dollar fell to a new record low against the euro and a 26-year trough against the pound, as fears rose that the troubled subprime mortgage market would harm the broader economy.
Crude oil futures climbed to more than $76 a barrel on the back on falling supplies and expectations for a strong global economy. James Neale, an analyst at Citigroup, said the market overreacted to news that Total declared a force majeure at its recently commissioned Angola field.
Gold futures closed at their highest level in more than two months Friday to end the week with a gain of nearly 3%, buoyed by weak dollar and strong oil prices. August gold climbed $6.60 to close at $684.70 an ounce, its highest closing since May 9. The contract finished the week with a gain of 2.6%.
Treasury prices rallied sharply, driving the yield on the benchmark 10-year Treasury note to its lowest level in almost seven weeks.
By Kate Gibson