NEW YORK – Stocks fell Friday after Federal Reserve Chairman Alan Greenspan sounded a warning over the nation's spiraling trade deficit and as a sudden surge in oil prices weighed on Wall Street.
The Dow Jones industrial average (search) closed down 123.70 points, or 1.17 percent, at 10,448.85. The Standard & Poor's 500 Index (search) finished down 13.15 points, or 1.11 percent, at 1,170.40. The technology-laced Nasdaq Composite Index (search) fell 31.23 points, or 1.48 percent, to 2,073.05.
For the week, the Dow was down about 0.78 percent, the S&P lost about 1.17 percent while the Nasdaq fell about 0.68 percent.
Friday's performance pushed the major indexes to their first weekly loss after three straight weeks of gains, putting an end to the post-election rally on Wall Street. Most analysts, however, said the week's trading, and especially Friday's losses, were a pause in an overall positive market, and added that stocks would likely continue to rise into the new year.
Wall Street paid close attention to Alan Greenspan's (search) unusually frank assessment of the trade imbalance and its effect on the U.S. economy. The Fed chairman said the economy was resilient thus far, but would be vulnerable to foreign influence should the deficits continue to build.
"Greenspan's (interest) rate comments were the ones that sent stocks lower today — it was almost instantaneous," said Brian Williamson, vice president, equity trading, The Boston Co. Asset Management.
"We had a triple whammy — dollar, rates and oil. The three factors in combination led to a pretty major sell-off across the board," said Williamson.
Greenspan said the United States should cut its budget gap to foster a more balanced pattern of global trade and avoid painful economic consequences. He spoke to European bankers in Frankfurt.
Greenspan's caution that investor appetite for the dollar would dwindle sent the euro near its all-time peak against the greenback. A lower dollar dampens stocks because it can reduce foreign investors' appetite for U.S. assets.
"Even though (Greenspan's) comments don't indicate anything new about the general outlook, just to hear it confirmed and emphasized by the most important policymaker out there I think just shook markets up," said John Shin, U.S. economist at Lehman Brothers.
Stocks also were pressured by oil prices, which rose in response to a U.S. government report that showed a drop in inventory for distillates such as heating oil — critical as winter approaches. A barrel of light crude ended up $2.22 at $48.44 on the New York Mercantile Exchange (search).High oil prices hurt stocks because of their impact on profits and consumer spending.
Financial companies slipped as increased rates are seen as dampening demand for credit from banks and other lenders. Citigroup Inc. (C) fell 76 cents to $45.15, while General Electric Co. (GE) which has a finance arm in General Electric Capital Corp., fell 56 cents to $36.27.
But the weaker dollar pushed gold — a classic haven during economic uncertainty — to a fresh 16-1/4-year peak. That helped gold stocks such as Newmont Mining Corp. (NEM) up 1 percent, or 54 cents to $49.17 and Placer Dome Inc. (PDG), up 29 cents to $22.25.
Nike Inc. (NKE) lost $2.50 to $82.50 after the company announced that co-founder Phil Knight was stepping down as president and chief executive officer. Knight will remain chairman of the sports shoe giant, while William D. Perez, a top executive at privately held S.C. Johnson & Son Inc., will take over as president and CEO.
Sirius Satellite Radio Inc. (SIRI) also has new leadership, recruiting former Viacom Inc. president Mel Karmazin as its new CEO. Sirius surged 45 cents, or 9.5 percent, to $5.17 on the news.
The Walt Disney Co. (DIS) was up 29 cents at $26.66 after it beat Wall Street profit expectations on Thursday afternoon by 6 cents per share. The media conglomerate said strong results from its ABC television network and cable channels offset a poor performance in its movie division. The company reiterated its 2005 guidance, but warned that the first quarter could be weak.
Friday midnight was the deadline issued by Oracle Corp. (ORCL ) for shareholders of PeopleSoft Inc. to respond to the former's $24 per share takeover bid. Oracle plans to abandon its bid unless more than half of PeopleSoft's shares are tendered by the deadline. Oracle fell 22 cents to $12.75, while PeopleSoft gained 25 to $23.17.
Meanwhile, chip-equipment makers pulled down the Nasdaq after Goldman Sachs lowered its coverage view on the U.S. chip equipment industry to "cautious" from "neutral". The Philadelphia Stock Exchange Semiconductor index (search) fell more than 3 percent.
Drug stocks fell a day after a veteran Food and Drug Administration researcher said five medicines on the market needed closer scrutiny for safety reasons — although the FDA said Friday that the testimony did not reflect the views of the agency. Pfizer Inc. (PFE), whose arthritis treatment Bextra was one drug singled out, fell 54 cents to $27.23.
Friday was also the last trading day for November individual equity options and some options on November stock indexes which can cause volatility as traders close out their positions before contracts expire. However, this had little impact on the session's trading, according to Warren West, president of Greentree Brokerage Services Inc., with the bigger issues being the dollar and oil.
Overall, trading was active, with 1.5 billion shares changing hands on the New York Stock Exchange (search), above the 1.4 billion daily average for last year. About 2 billion shares were traded on Nasdaq, above the 1.69 billion daily average last year. Advancers outnumbered decliners on the NYSE by about 12-to-5 and the Nasdaq by about 2-to-1.
The Russell 2000 index of smaller companies was down 8.62, or 1.39 percent, at 613.44.
Overseas, Japan's Nikkei stock average rose less than 0.01 percent. In Europe, Britain's FTSE 100 closed down 0.93 percent, France's CAC-40 fell 0.83 percent for the session, and Germany's DAX index dropped 1.05 percent.
Reuters and the Associated Press contributed to this report.