NEW YORK – Stocks slumped Friday as investors sold Intel Corp. (INTC) a day after it issued a bullish sales forecast, while a widening trade deficit rekindled Wall Street's worries about inflation.
The Dow Jones industrial average (search) was down 77.15 points, or 0.71 percent, to end at 10,774.36. The Standard & Poor's 500 Index (search) was down 9.17 points, or 0.76 percent, at 1,200.08 — closing above the 1,200 mark by just a whisker. The Nasdaq Composite Index (search) was down 18.12 points, or 0.88 percent, at 2,041.60, its lowest close in about two weeks.
For the week, the Dow fell 1.51 percent, the S&P 500 lost 1.80 percent, and the Nasdaq slid 1.40 percent.
Intel, the world's largest chip maker, dragged on the major indexes, falling 2.6 percent. The Philadelphia Stock Exchange semiconductor index (search) lost 2.9 percent. The drop came a day after Intel forecast improving profit margins and a revenue outlook that topped the average estimate of Wall Street analysts.
Some noted that the decline in Intel's stock price followed its run-up ahead of the company's quarterly update.
"The thinking is that everyone got long ahead of Intel, thinking they would do what they did and raise guidance. But now that that's done and you start looking at the grand mosaic ... there are still some question marks that remain," said Greg Palmer, head of equity trading at Pacific Crest Securities.
Richard Shannon, an analyst at Piper Jaffray, wrote in a research note that he was "taking a somewhat conservative view" of the second quarter this year, based on Intel's new guidance.
Intel fell 65 cents to $24.20.
Wall Street was also unnerved as the Commerce Department (search) reported that the trade deficit widened to $58.3 billion in January, the second highest level after November's record reading. While the nation's exports rose to record highs, imports rose even faster, leading investors to fear a loss of confidence in the dollar overseas. The dollar fell against most major currencies after the news came out.
"Intel's outlook was positive, but the trade deficit was worse than expected, with fears that it will lead to a weaker dollar and a higher interest rates," said Jim Awad, chairman of Awad Asset Management. "It is a tug of war today between the optimism about earnings and the fear that interest rates might move higher."
Oil futures spiked higher as the dollar slipped through the morning, climbing back above $54 per barrel. A barrel of light crude settled at $54.43, up 89 cents, on the New York Mercantile Exchange (search).
"Oil is definitely weighing on people," said Tim Heekin, director of trading at Thomas Weisel Partners, a San Francisco investment bank. He said there were also concerns about inflation and higher interest rates. "The certainty of a rate hike later this month and another most assuredly in May, I think has got people a little rattled."
The dollar slipped lower on news of the widening trade gap, giving back earlier gains against the euro and Japanese yen. Bonds also fell as investors worried that the deficit and historically low dollar could still trigger inflation. The yield on the 10-year Treasury note rose to 4.55 percent, up from Thursday's close of 4.47 percent.
Among other sliding chip stocks were Texas Instruments Inc. (TXN), off 3.25 percent, or 88 cents, at $26.20, and semiconductor manufacturing equipment maker KLA-Tencor Corp. (KLAC), down 4.51 percent, or $2.21, at $46.75.
Wireless technology company Qualcomm Inc. (QCOM) gained after a brokerage upgrade. Qualcomm rose 27 cents, or 0.73 percent, to $37.35, after UBS raised its rating on the stock to "buy."
Kmart Holding Corp. (KMRT) jumped 13.28 percent, or $14.89, to $127 a day after UBS upgraded the retailer's rating, with a price target of $160.
Shares of auto parts manufacturer Visteon Corp. (VC) climbed 64 cents, or 10.2 percent, to $6.90 after Ford Motor Co. agreed to financial concessions to help its former subsidary improve its bottom line while still ensuring a steady supply of components. Ford was up 2 cents at $12.39.
Trading was active, with 1.45 billion shares changing hands on the New York Stock Exchange, about the same as the 1.46 billion daily average for last year. About 1.79 billion shares were traded on Nasdaq, below the 1.81 billion daily average last year. Decliners outnumbered advancers on the New York Stock Exchange by about 5 to 3 and by about 9 to 7 on Nasdaq.
The Russell 2000 index of smaller companies was down 0.10, or 0.02 percent, at 626.84.
Overseas, Japan's Nikkei stock average rose 0.5 percent. In Europe, Britain's FTSE 100 closed up 0.4 percent, France's CAC-40 gained 0.27 percent for the session, and Germany's DAX index climbed 0.53 percent in late trading.
Reuters and the Associated Press contributed to this report.