Markets drop as investors worry about weak earnings
NEW YORK -- Wall Street stumbled Friday after a disappointing first-quarter report from General Electric Co. surprised the market and stoked concern about the health of both corporate profits and the wider economy.
The major indexes fell more than 2 percent, with the Dow Jones industrials giving up more than 250 points.
A weaker-than-expected reading showing consumer confidence at a 26-year low subdued any positive sentiment.
GE, which is regarded as a bellwether of big business, said its financial-services divisions have been challenged by the slowing U.S. economy and difficult capital markets. The company, whose orbit extends into entertainment, consumer and industrial manufacturing, finance and health care, also lowered its projections for the entire year.
The conglomerate is one of the early companies to post first-quarter results and its shortfall stirred worries that others still to report will paint a similarly dreary picture. The smaller-than-expected profits from GE injected anxiety into a market that earlier this week saw disappointing results from aluminum producer Alcoa Inc. and a warning from chip maker Advanced Micro Devices Inc.
"The market really is focusing on the extent to which problems in the credit markets are spilling over into the real economy," said Brian Gendreau, investment strategist for ING Investment Management in New York.
According to preliminary calculations, the Dow fell 256.56, or 2.04 percent, to 12,325.42. GE was by far the steepest decliner among the 30 stocks that comprise the Dow. Its shares dropped $4.70, or 13 percent, to $32.05.
Declining issues outnumbered advancers by more than 3 to 1 on the New York Stock Exchange.
Friday's pullback followed a comparatively quiet week in which the major indexes showed modest adjustments. Stocks were little changed Monday, declined Tuesday following profit warnings from names like United Parcel Service Inc. and posted moderate gains Thursday following a drop in unemployment claims.
For the week, the Dow lost 2.3 percent, the S&P 500 declined 2.7 percent and the technology-heavy Nasdaq gave up 3.4 percent.
Bond prices rose Friday as investors fearful of a slowing economy took up defensive positions in government debt. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 3.46 percent from 3.55 percent late Thursday.
A snapshot of a gloomy consumer added to recent reports showing Americans' confidence in the economy at new lows, dragged down by worries about mounting job losses, record-high home foreclosures and zooming energy prices.
The preliminary Reuters/University of Michigan index of consumer sentiment fell to 63.2 for April -- its lowest point since 1982 -- from 69.5 in March, according to Dow Jones Newswires. Economists polled by Thomson/IFR had, on average, expected a reading of 68.
"I think rationality is coming into the market," said Alan Lancz, director at investment research group LanczGlobal in Toledo, Ohio. "Every time we move up to test the upper end of the range, something seems to happen."
He said even if the most onerous times for the financial sector have passed, as some market watchers have said, the effects of a tight credit market will be felt for some time. Lancz said GE's results offer new evidence forecasts for corporate profits in general remain too rosy given the troubles hitting businesses.
"They're facing a lot of headwinds that I don't think a lot of analysts have put into their numbers," he said.
Lancz contends the Federal Reserve's moves last month to head off the collapse of Bear Stearns Cos. no doubt helped stabilize Wall Street but might have led some investors to become complacent about the scope of the troubles still facing the economy.