NEW YORK – Stocks slumped Friday as investors, worried by the second-half earnings outlook and a jump in oil prices, shrugged off a lower-than-expected rise in consumer prices, which supported expectations that inflation is at bay.
Weakness in semiconductor-related companies helped push the Nasdaq Composite to its lowest close in two months.
The Dow Jones industrial average (search) fell 23.38 points, or 0.23 percent, to 10,139.78, and the Standard & Poor's 500 Index (search) dropped 5.30 points, or 0.48 percent, to 1,101.39. The technology-laced Nasdaq Composite Index (search) fell 29.56 points, or 1.55 percent, to 1,883.15, its lowest close since May 17.
Trading was active, with about 1.4 billion shares traded on the New York Stock Exchange and 1.8 billion shares traded on Nasdaq.
For the week, the S&P 500 fell 1 percent, racking up its fifth consecutive week of losses. The Dow fell 0.7 percent, its fourth straight week of declines, and the Nasdaq Composite fell 3.3 percent, its third straight down week.
While investors were cheered by a better-than-expected reading in the Labor Department's (search) consumer price index, they are increasingly preoccupied with earnings, and so they feared that lower prices would translate into lower profits.
"This should be good news. It takes inflation off the table as a concern, at least for now," said Daniel Portanova, managing director of Gartmore Separate Accounts LLC. "But I think the bigger question now is the sustainability of the recovery and profits going forward."
Friday's session followed a now weeks-long pattern, in which the market stagnated, or skidded lower, even though there was upbeat news.
The closely watched CPI is considered one of the best measures of consumer prices and inflation. The index rose just 0.3 percent in June — half the previous month's rise. "Core" prices, excluding energy and food, rose just 0.1 percent.
That's good news for companies, since the Federal Reserve (search) was expected to be less likely to aggressively raise benchmark interest rates, currently at 1.25 percent, while prices remain relatively steady. But investors had other concerns on their minds, such as Friday's spike in oil prices due to a terrorist attack on an Iraqi pipeline.
Oil jumped to a 6-week high on worries about possible sabest economic data did little to quell speculation that the economy's red-hot rebound is beginning to cool.
"It's all symptomatic of a slowing economic pace. I think that's what's worrying everybody," said Larry Wachtel, senior vice president and market analyst at Wachovia Securities. "The second-quarter earnings were mixed. They certainly weren't the turn-on everyone had hoped they would be."
One report showed consumer sentiment rose less than expected in July, and another showed the pace of consumer price gains slowed in June.
"First you have the political environment with the election, then you have the concern that profits will slow down significantly going into 2005, and finally, the geopolitical situation abroad is kind of lingering in the background," said Chris Wolfe, global head of equities for J.P. Morgan Private Bank. "We may have good earnings, but investors are discounting these other things instead."
Investors' uneasy mood led them to look past good news in the battered tech sector, which saw numerous warnings and profit shortcomings in recent weeks.
International Business Machines Corp. (IBM) underpinned the Dow after posting better-than-expected quarterly results Thursday. Its shares rose 26 cents to $84.28.
Dell (DELL), the world's largest personal computer maker, climbed after it raised its quarterly profit outlook as overseas sales improved and its tax rate declined. It gained 55 cents, or 2 percent, to $35.42.
Boston Scientific Corp. (BSX), however, plunged after it reported it is expanding its recall of its popular heart device because of a malfunction. Its shares, which were halted most of the day, fell $3.09, or 7.6 percent, to $37.40.
Johnson & Johnson (JNJ), which makes a competing device, was the Dow's biggest percentage gainer with a rise of $1.45, or 2.6 percent, to $56.80.
Semiconductor shares, which have been battered in recent weeks amid worries about lackluster demand, fell further, pushing the Philadelphia Stock Exchange's semiconductor index down nearly 2 percent.
PMC-Sierra (PMCS), which said it expects its revenue to be flat to up slightly in the current quarter over the last, fell $1.29, or 11 percent, to $10.46.
Mobile phone maker Motorola Inc. (MOT) fell sharply after analysts at Smith Barney Citigroup and Lehman Brothers cut their investment ratings on the company's stock. Motorola's shares fell 78 cents, or 5 percent, to $15.80.
Motorola's spinoff, Freescale Semiconductor Inc. (FSL), priced its nearly $1.6 billion initial public stock offering at the low end of its estimated range, which it had already slashed because of a difficult environment for chip stocks. Shares of Freescale, which priced at $13 a share, rose 8 percent in their market debut to $14.02 on the NYSE.
Oil settled 48 cents higher at $41.25 a barrel after rising as high as $41.80, its highest level since the 21-year record of $42.45 hit on June 2.
Oil-related companies benefited, lifting the American Stock Exchange's oil index nearly 2 percent. Exxon Mobil (XOM), ChevronTexaco Corp. (CVX) and ConocoPhillips all hit 52-week highs during the session.
In a courtroom in lower Manhattan, Martha Stewart, who built a catering company into a media empire but then was convicted for lying about a stock sale, was sentenced Friday to the minimum under federal guidelines. Shares of Martha Stewart Living Omnimedia Inc. (MSO) soared, gaining $3.17, or 37 percent, to $11.81.
Banking company KeyCorp (KEY) was down 36 cents at $29.09 despite beating its second-quarter estimates by 2 cents per share. The company credited a rise investment and business banking and a decline in bad loans.
Toy maker Hasbro Inc. (HAS) missed its earnings expectations by 2 cents per share despite a strong cost-cutting effort, blaming the miss on declines in its Beyblade products. Hasbro slipped 4 cents to $17.96.
The Russell 2000 index of smaller companies was down 6.70, or 1.2 percent, at 555.46.
Overseas, Japan's Nikkei stock average rose 0.2 percent. In Europe, Britain's FTSE 100, Germany's DAX index and France's CAC-40 were all flat for the session.
Reuters and the Associated Press contributed to this report.