Stocks Slip After Greenspan's Cautious Speech
NEW YORK – Stocks fell Friday after Federal Reserve Chairman Alan Greenspan said "significant" near-term risk remains for the U.S. economy his first substantive comments on the economic picture since last October.
Friday closed out a losing week for the market, with broad equity indexes falling after three successive weeks of gains.
The Dow Jones industrial average , ending near the low of the day, dropped 80.33 points, or 0.80 percent, to 9,987.53. It was the first close under 10,000 for the Dow since Dec. 20.
The technology-packed Nasdaq Composite Index dropped 24.76 points at 2,022.48. The broader Standard & Poor's 500 Index lost 10.95 at 1,145.60.
For the week, the Dow fell 2.7 percent, the Nasdaq shed 1.8 percent and the S&P 500 was off 2.3 percent.
Stocks had slipped earlier in the session on fears a recent rally has made stock prices expensive even with the expected economic turn. Declines extended after Greenspan said the jobless rate may continue rising, which could hurt consumer spending.
"Basically he says that Wall Street's too optimistic ... that the rebound won't take hold," said Peter Coolidge, senior equity trader at Brean Murray & Co., referring to Greenspan's remarks.
"That's been the market's biggest fear -- that Wall Street's been too optimistic and that a significant part of the recovery has already been priced into valuations. So if you don't get the recovery...that means the market might be ripe for some selling pressure."
Technology stocks have surged 42 percent since three-year lows touched on Set. 21 of last year.
Economic data have been offering hints of improvement in the economy, mired in recession since last March. But companies are still struggling to churn out profits. Investors are concerned that the recent run-up has made stocks too pricey, with earnings not expected to turn around until at least the second quarter.
"I think the market is boxed in by two factors: One, it is overextended and therefore it can't drive forward, and the other is the fundamentals are good and people don't really want to give ground," said Larry Wachtel, a market analyst at Prudential Securities. "I think we have to digest our gains."
Stocks in the Standard & Poor's 500 index are selling for 22 times their forecast earnings this year -- about the same multiple as at the height of the bull market in March 2000, according to research firm Thomson Financial/First Call.
Ford Motor Co. added 33 cents to $15.65. The world's second-largest automaker said it will close five plants as part of an overhaul aimed at improving profits by $9 billion by the middle of the decade.
UBS, Switzerland's biggest bank, won the auction for the trading unit of Enron Corp. , the once mighty energy trader, lawyers for Enron said. Last month Enron filed for the biggest U.S. bankruptcy ever. Enron shares, halted all morning for news pending, last traded at 67 cents.
Rambus Inc., a developer of technology that speeds the performance of computer-memory chips, rose 48 cents to $9.07. The company said quarterly net income fell from a year ago amid a steep decline in memory-chip prices throughout the industry, but Rambus still beat Wall Street consensus estimates.
Cree Inc. dropped $6.07 to $24.59 after the maker of light-emitting diodes, or LEDs, used in automotive and cell phone displays, missed earnings expectations and gave a dim forecast for fiscal 2002 and 2003 growth.
IGEN International Inc. rallied $4.79 to $42.88. A Maryland jury awarded it $505 million in total damages in its long-running legal dispute with Swiss pharmaceuticals group Roche Holding Ltd. over the licensing of IGEN's blood-testing technology.
Rational Software Corp., a maker of tools that help computer application programmers design code and test software, climbed $2.03 to $24.20. The company posted a 67 percent drop in quarterly operating profits, but said it may be seeing early signs of a turnaround.
Kmart Corp. lost $1.03 to $3.17 and ranked as the most active issue on the New York Stock Exchange. The retailer, battered by falling earnings, ratings downgrades and rumors of a possible bankruptcy filing, is in early talks to secure a special loan under which it would put up company assets as collateral, banking sources said.
FedEx Corp. fell $2.22 to $50.78. Wall Street house Salomon Smith Barney cut its rating on the overnight transport specialist to "neutral" from "outperform," saying a sharp run-up in expectation of operating gains may overanticipate the level of economic rebound.
U.S. wholesale prices fell in December for the third straight month, the government said on Friday in a report showing inflation was contained as the sluggish global economy kept imported energy prices down.
Declining issues narrowly outnumbered advancers nearly 3 to 2 on the New York Stock Exchange. Trading volume was 912.72 million shares, below the 1.01 billion traded at the same point Thursday.
The Russell 2000 index, the barometer of smaller company stocks, fell 2.75, or 0.6 percent, to 492.56.
Overseas, Japan's Nikkei stock average finished Friday down 0.9 percent. In Europe, France's CAC-40 closed up 0.9 percent, Britain's FT-SE 100 advanced nearly 0.2 percent, and Germany's DAX index declined 0.4 percent.
Reuters and the Associated Press contributed to this report.