The stock market capped its worst three-day selloff in five years on Friday, once again led by pain in the technology and financial sectors.
The Dow Jones Industrial Average ended 223.55 points lower to 13042.74, and the S&P 500 lost 21.07 to 1453.70. The Nasdaq Composite Index declined 68.06 to 2627.94, or 2.5%.
In the past three days, the Nasdaq has tumbled nearly 7%, while the Dow and S&P 500 have fallen about 4.5% and 4.4%, respectively. That was the worst three-day performance for each index since November 11, 2002.
Formerly high-flying big-cap tech stocks such as Google, Apple and Research in Motion continued to swoon, falling 4.3%, 4.3% and 8.7%, respectively on the day. During the three-day selloff, Google lost 10.5%, Apple fell 13.8% and RIM sank 13.5% (even though it actually rose on Wednesday).
Triggering Friday's tech selloff was poor earnings guidance from Qualcomm. The cellphone-chip maker reported 84% growth in its fiscal fourth-quarter profit, but its forecast for fiscal 2008 fell below analysts' estimates. Qualcomm's shares fell 4.18% to $37.93, extending after-hours losses from Thursday.
Some analysts attributed tech's weakness to expectations of a broader economic slowdown and dreary business spending in the fourth quarter. "We are going to see the U.S. economy slow down, [and] CEOs will get more pessimistic about next year. Are they really going to go out and spend more money on technology?" said Scott Wren, senior equity strategist at A.G. Edwards & Sons.
The day's unwinding of the yen carry trade may also have played a role. In the past few months, many hedge funds have borrowed low-yielding yen to invest in U.S. technology stocks and short financials, according to Bill King, chief market strategist at M. Ramsey King Securities. Now they're unraveling that trade. "With technology stocks falling, they are selling tech and buying yen to return the money, which has pushed up the yen," he said.
The greenback recently fell to 110.79 yen, its lowest level against the Japanese currency since June 2006.
Bucking the trend, financials, which have been brutally crushed lately, eked out a gain. At one point in the late afternoon, the AMEX Securities Broker/Dealer index was up more than 2%, but a late-hour selling spree wiped out most of the gains.
Earlier Friday, a warning by Wachovia of a large write-down of its subprime exposure had generated a fresh wave of credit worries. The fourth-largest U.S. bank said it expects to take another $1.1 billion pretax hit -- on top of a $347 million write-down already announced -- as conditions continue to deteriorate in the subprime-mortgage market. Wachovia also signaled more losses are ahead in the fourth quarter. The bank is expected to file its quarterly report later today. However, its shares turned the tide and ended the day up 0.9% to $40.59.
Other financials ended in the black: Citigroup advanced 0.6%, Goldman Sachs gained 0.7%, Lehman Brothers was up 3.5%, and Morgan Stanley climbed 1%.
"There's…some bottom-fishing and short-covering taking place," said Vinny Catalano, chief investment strategist at Blue Marble Research. "A fair number of short positions held by hedge funds probably blossomed out lately, and these speculators are now buying back the stocks to take profits, offering buying support for financial stocks."
"It's extraordinary that we have a down market and financials are performing well. It might suggest they have turned the corner, but I won't buy financials just based on one day's performance," said Hugh Johnson, chief investment officer at Johnson Illington Advisors. "There will be another shoe to drop, or two shoes."
On the New York Stock Exchange, 884 stocks advanced and 2,392 declined, on composite volume of 1.825 billion shares traded in stocks listed on the exchange.
