Stocks fall as traders worry over weekend

A specilaist works at his on the floor of post the New York Stock Exchange, Fri­day Aug. 19, 2011. (AP Photo/Richard Drew)

DANIEL WAGNER, DAVID K. RANDALL

AP Busi­ness Writers

NEW YORK (AP) — A grow­ing belief that the U.S. econ­omy may be headed toward reces­sion gave the stock mar­ket its fourth straight week of losses.

The anx­i­ety in the mar­ket was obvi­ous Fri­day as the major indexes went from mod­er­ate gains early in the day to another sharp loss. The Dow Jones indus­trial aver­age had its 10th move of more than 100 points in 15 trad­ing days this month.

“We just don’t know whether we’re going to have a reces­sion,” said John Burke, head of Burke Finan­cial Strategies.

There was lit­tle news to help investors deter­mine their next moves. How­ever, JPMor­gan Chase & Co. joined other finan­cial firms and cut its fore­cast for eco­nomic growth dur­ing the fourth quar­ter. It’s now pre­dict­ing growth at annual rate of just 1 per­cent, down from an ear­lier fore­cast of 2.5 per­cent. That added to the reces­sion fears.

Investors dis­liked the news late Thurs­day that Hewlett-Packard Co. is plan­ning to exit most of its con­sumer busi­nesses, includ­ing PCs. HP fell 20 per­cent to a six-year low. HP plans to trans­form itself into a com­pany that caters to corporations.

After the mar­ket rose early, some investors sold in case bad news comes out of Europe over the week­end. Euro­pean investors were also cau­tious — bank­ing stocks fell near two-and-a-half-year lows, dragged down by rumors about banks’ poten­tial losses on bonds issued by heav­ily indebted governments.

“These things usu­ally break out over the week­end and then you have a mad dash Mon­day to react to them,” said Mike McGer­vey, the head of McGer­vey Wealth Management.

The drop late in the day recalled the 2008 finan­cial cri­sis. Then, many investors stepped up their sell­ing in the after­noon out of fears about news that might break overnight — or on week­ends. Lehman Broth­ers failed on Sun­day, Sept. 15. The gov­ern­ment took over mort­gage com­pa­nies Fan­nie Mae and Fred­die Mac the pre­vi­ous weekend.

The Dow lost 172.93, or 1.6 per­cent, and closed at 10,817.65. It was down 4 per­cent for the week. Since July 21 — four weeks and one day — the Dow is down 15 percent.

Com­pa­nies that rely on an expand­ing econ­omy for higher rev­enue fell. Cater­pil­lar Inc., Inter­na­tional Busi­ness Machines and Alcoa Inc. each fell more than 2 percent.

The Stan­dard & Poor’s 500 stock index fell 17.12, or 1.5 per­cent, to 1,123.53. It was down 4.7 per­cent for the week. All 10 indus­try groups that make up the index fell.

The Nas­daq com­pos­ite fell 38.59, or 1.6 per­cent, to 2,341.84. It was down 6.6 per­cent for the week.

Although stocks fell, investors did not con­tinue push­ing the price of Trea­surys, as they have the last three weeks. The yield on the bench­mark 10-year Trea­sury note was almost unchanged at 2.07 per­cent, com­pared with late Thursday’s 2.06 per­cent. It had been up to 2.11 per­cent ear­lier in the day. The yield fell below 2 per­cent Thurs­day for the first time as heavy demand sent its price sharply higher.

Investors began the week con­fi­dent after last week’s volatil­ity, the worst the mar­ket has had since the 2008 finan­cial cri­sis. The Dow rose nearly 215 points on Mon­day when Google, Time Warner Cable and Cargill were among com­pa­nies announc­ing multi-billion deals. The mar­ket remained rel­a­tively calm the next two days. But on Thurs­day, a stream of bad eco­nomic news in the U.S. com­bined with wor­ries about Europe’s debt prob­lems and sent the Dow plung­ing 419 points.

Since July 21, the mar­ket has gone from one cri­sis to another, and the weak­en­ing U.S. econ­omy has been at the heart of the sell­ing. In late July, the con­cern was the debt debate going on in Wash­ing­ton. In early August, it was the down­grade of the U.S. debt rat­ing by Stan­dard & Poor’s. Since then, wor­ries about the impact of the down­grade have faded, and grow­ing evi­dence that the econ­omy is slow­ing has dri­ven stocks down.

Signs of a slower econ­omy around the world have only made investors more pes­simistic about the U.S. Ear­lier this week, Ger­many said its econ­omy grew just 0.1 per­cent in the sec­ond quar­ter. And Ger­many is the strongest econ­omy in Europe.

Stocks fell Thurs­day on news of another drop in home sales, weaker man­u­fac­tur­ing in the mid-Atlantic states and an increase in the num­ber of peo­ple who applied for unem­ploy­ment benefits.

The stock mar­ket tends to reflect the expec­ta­tions that investors have for the econ­omy and com­pany earn­ings six to nine months in the future. So traders are inter­pret­ing the num­bers they’re see­ing as part of a slide in the econ­omy that will con­tinue for some time.

A reces­sion is gen­er­ally thought of as two con­sec­u­tive quar­ters in which the econ­omy con­tracts, as mea­sured by a country’s gross domes­tic prod­uct. With expec­ta­tions of growth in the U.S. already low, investors worry that the econ­omy can’t with­stand another unex­pected event like the earth­quake in Japan or the string of bad weather that rav­aged the South ear­lier this year.

JPMor­gan ana­lyst Michael Fer­oli said busi­ness con­fi­dence, house­hold wealth and global growth all look worse than just a few weeks ago. He expects eco­nomic growth to be nearly flat into the first quar­ter of 2012.

Next week is likely to bring more volatil­ity. On Fri­day, the gov­ern­ment will give its sec­ond esti­mate of how the econ­omy did dur­ing the sec­ond quar­ter. It said a month ago that the GDP grew at an annual rate of just 1.3 per­cent dur­ing the quar­ter. Econ­o­mists expect the gov­ern­ment to announce a lower read­ing: 1.1 per­cent. The GDP report July 29 con­tributed to the market’s heavy losses. So did the government’s revised esti­mate for the first quar­ter: 0.4 percent.

Next Fri­day also brings the Fed­eral Reserve’s annual retreat at Jack­son Hole, Wyo. It was a year ago at Jack­son Hole that Fed Chair­man Ben Bernanke hinted that the cen­tral bank would begin buy­ing $600 bil­lion in Trea­sury secu­ri­ties to stim­u­late the econ­omy. The buy­ing ended June 30. Now investors want to know if the Fed will act again.

But some ana­lysts think that the U.S. econ­omy will con­tinue to grow on its own, although slowly.

“The mar­ket is think­ing that we’re going into a reces­sion, but the data is telling you that we’re not,” said Jonathan Golub, chief U.S. mar­ket strate­gist for UBS. He pointed to an increase Thurs­day in an index of eco­nomic lead­ing indi­ca­tors that sug­gested the econ­omy is expand­ing slowly.

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