Stocks Drop Late Friday, Reversing Early Gains

Stock markets, despite showing positive signs in a strong Monday rally, had another tough week. Responding to poor economic forecasts, stocks fell steadily through the rest of the week. As has been the trend lately, stocks plummeted in the last hour of Friday trading, negating gains made earlier in the week. Major indexes lost about a quarter of a percentage point.

Even though the market enjoyed a large two month rally in the spring, choppy trading shows that investors doubt the rally will continue. Other bad news for the market this week came in the form of the government’s expectation that unemployment could top 9.5%, which is worse than previously thought, and S&P’s prediction that the British government could lose it’s top shelf credit rating.

Friday started out good as stocks rose in response to higher than expected earnings from retailers such as Sears, Gap, and Aeropostale Inc. But for the third time this week stocks plummeted late to erase early gains as losses in the financial and industrial sectors dragged the overall market down.

The recent two month-plus rally, in which stocks rose more than 30% from 12 year lows set in March, had little chance to continue this week as very few economic reports were released. Next week there should be more fuel for the market, as reports on home sales, consumer confidence, and orders for manufactured goods will be released. The news in those reports could be a key factor in whether the spring rally resumes or came to an end on Monday.

One analyst said that everything is overpriced and we are still very much in a recession. The Dow Jones fell almost 15 points, The Nasdaq fell 3.25, and the S&P 500 fell 1 1/3 points.

Despite the up and down movement in markets through the week, they ended the week with very small gains. The Dow gained a tenth of a percent, NASDAQ .7 percent, and the S & P .48%. Standard & Poor’s warned Thursday that it may lower the British government’s excellent credit rating, a move that would raise their borrowing costs even as they are actively spending to help ailing British banks. The move caused some investors to wonder if the US’ credit rating could be next. Those concerns abated somewhat on Friday, but Treasurys lost value and the dollar fell to its lowest against the euro since January.

The 10-year Treasury note’s yield hit a new high for 2009, rising from 3.37% late Thursday to 3.46%. The 10 year note is commonly used as a standard for loans. The price of gold rose about a percent as investors searched for safe investments. Analysts worry about the economy’s ability to recover while interest rates are high and the dollar is low. There were some encouraging signs this week. The Federal Reserve reported less banks borrowing from its emergency loan program, and investment banks borrowed nothing. That hasn’t happened since the early part of September. The financial sector had mixed results after federal regulators seized their largest bank of the year and investors tried to deduce just how many more banks might fail. The credit card sector saw declines as the President enacted new laws governing the industry.

Florida based BankUnited FSB was seized late Thursday by Federal officials, a move that’s expected to cost the FDIC insurance fund almost $5 billion. It is the largest bank seizure since California based IndyMac bank last year that cost around $10.6 billion.

Bank of America fell 3%, or 34 cents, while Capital One fell 4.4%, or over a dollar, and American Express fell 3%, or 75 cents.
In non-major markets, the Russell 2000 index fell almost a percent, or 3.60 points. Markets will be closed for Memorial Day on Monday. Trading was down, from 5.76 billion shares on Thursday, to 4.35 billion shares on Friday, with about a 5 to 4 ratio of stocks rising to falling. Oil climbed 62 cents.

Internationally, Britain’s FTSE 100 gained .5%, Germany’s DAX rose .4%, France’s CAC-40 gained .3%, and Japan’s Nikkei dropped .4%.
The Dow Jone US Total Stock Market Index, which accounts for almost all US based companies, ended the week down .2% at 9,068 points. This time last year, it was at 14, 127 points.