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Wall Street ends volatile week with late rally

Wall Street ended a volatile week with a late-day comeback Friday after investors set aside some concerns about the banking sector and the health of the overall economy.
/ Source: The Associated Press

Wall Street ended a volatile week with a late-day comeback Friday after investors set aside some concerns about the banking sector and the health of the overall economy.

Stocks began Friday’s trading having fallen in six of the prior seven sessions as investors fretted about whether consumers would succumb to higher energy prices, rising mortgage costs and an anemic dollar. Continuing credit turmoil has also stirred concerns about the soundness of corporate balance sheets and profits. A sharp rally Tuesday was largely undone by subsequent pullbacks; on Friday, the market appeared headed to another down day before the major indexes, which had flip-flopped all day, turned higher in the last half-hour.

Financial stocks fell, partly due to a Fortune story that raised the possibility Fannie Mae could be masking the true magnitude of credit-related hits to its profits. Company executives defended a change in the way the largest U.S. buyer and backer of home loans calculates losses on home loans.

Giving investors further reason for worry, FedEx Corp. lowered its earnings expectations for the fiscal second quarter and full year and Starbucks Corp. slashed its earnings forecast for the fourth quarter after it reported traffic at stores open at least 13 months dropped by 1 percent.

But tech stocks saw gains. Investors have at times viewed technology companies as likely to fare better during an economic downturn than some groups such as retailers. Cisco Systems Inc., the world’s largest network equipment company, said Friday it plans to repurchase an additional $10 billion in stock and an analyst upgraded Hewlett-Packard Co.

Meanwhile, rising oil prices gave a boost to energy names such as Exxon Mobil Corp. and ConocoPhillips.

“You can certainly come up with a list of the top 10 reasons why we should be down,” said Art Hogan, chief market strategist at Jefferies & Co. in Boston. He contends the rally indicates the market was oversold.

“I think that’s being clearly reflected as we rally into what otherwise would be considered negative catalysts.”

The Dow Jones industrial average rose 66.74, or 0.51 percent, to 13,176.79

Broader stock indicators also recovered. The Standard & Poor’s 500 index rose 7.59, or 0.52 percent, to 1,458.74. The Nasdaq composite index rose 18.73, or 0.72 percent, to 2,637.24.

Despite the gains in the major indexes, declining issues outnumbered advancers by about 6 to 5 on the New York Stock Exchange, where consolidated volume came to 4 billion shares compared with 3.81 billion traded Thursday.

The major indexes managed gains for the week, with the Dow rising 1.03 percent and the S&P 500 and the Nasdaq each adding 0.35 percent.

Government bond prices fell as stocks fluctuated. The yield on the 10-year Treasury note, which moves opposite its price, rose to 4.15 percent from 4.14 percent late Thursday. The dollar slipped against other major currencies, while gold prices rose.

Oil prices rose Friday amid expectations that global crude supplies will remain tight despite a U.S. oil inventory report that showed a surprising build in domestic crude stockpiles. Light, sweet crude rose $1.67 to settle at $95.10 on the New York Mercantile Exchange.

The economic news arriving Friday seemed to offer investors little incentive to bid stocks higher. Industrial production in October showed the sharpest decrease in nine months. The Federal Reserve said output at the nation’s factories, mines and utilities fell by 0.5 percent last month — a much weaker showing than had been expected. The reading revealed a big drop in utility output and continued troubles in sectors tied to automobiles and housing.

Friday’s uneven trading followed a 120-point drop in the Dow on Thursday and didn’t signal easing of long-simmering concerns about woes in the credit markets. In particular, investors are wondering whether financial companies are facing a further souring of loans and will be forced to write down more than the $45 billion seen in the third quarter and the approximately $30 billion companies have outlined for the fourth quarter.

Fannie Mae fell $2.35, or 5.5 percent, to $40.69 after falling 10 percent Thursday. Chief Financial Officer Stephen Swad said some of the $670 million in provisions for credit losses on soured home loans that Fannie Mae wrote off in the third quarter likely would be recovered.

Reports late Thursday said Residential Capital, the troubled mortgage lending arm of GMAC, was close to breaching bank loan covenants. The unit is operated by private equity fund Cerberus Capital Management and General Motors Corp., which may not step in with an infusion of additional capital, according to the Financial Times and The Wall Street Journal.

Other corporate news weighed on the markets. FedEx fell $4.57, or 4.5 percent, to $96.80 after lowering its forecast amid rising fuel costs and a troubled U.S. freight market. And Starbucks fell 93 cents, or 3.9 percent, to $23.17 after the coffee retailer reported its first-ever decline in traffic at stores open more than a year. The company also said it plans to slow the pace of U.S. store openings.

The strength in technology and energy stocks lent some support to stocks. Cisco rose 64 cents, or 2.2 percent, to $29.94 after saying it would expand its stock buyback program to $62 billion. H-P gained after Morgan Stanley raised its rating on the largest maker of printers to “overweight” from “equal weight.” The stock rose $1.85, or 3.8 percent, to $50.75.

And Exxon rose 61 cents to $85.10, while ConocoPhillips advanced 89 cents to $78.93.

As Friday’s flip-flops would suggest, uncertainty remains a big force on Wall Street. Four of the previous five sessions had seen selloffs in the final hour of trading.

The Russell 2000 index of smaller companies fell 2.10, or 0.27 percent, to 769.50.

Overseas, Britain’s FTSE 100 fell 1.08 percent, Germany’s DAX index fell 0.71 percent, while France’s CAC-40 shed 0.61 percent. In Asia, Japan’s Nikkei stock average fell 1.57 percent and Hong Kong’s Hang Seng index fell 3.95 percent.

For the week
The Dow Jones industrial average ended the week up 134.05, or 1.03 percent, at 13,176.79. The Standard & Poor’s 500 index finished up 5.04, or 0.35 percent, at 1,458.74. The Nasdaq composite index ended up 9.30, or 0.35 percent, at 2,637.24.

The Russell 2000 index finished the week down 2.88, or 0.37 percent, at 769.50.

The Dow Jones Wilshire 5000 Composite Index — a free-float weighted index that measures 5,000 U.S. based companies — ended Friday at 14,727.28, up 17.99 points, or 0.12 percent, for the week. A year ago, the index was at 14,090.95.