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US stocks end week down 3.3 per cent on economic growth fears
Jonathan Cheng and Donna Kardos Yesalavich From: The Wall Street Journal August 14, 2010 9:51AM

US stocks limped to a small loss overnight, ending a week that saw major indices back into the red for the year on signs of slowing growth.

The Dow Jones Industrial Average fell 16.80 points, or 0.16 per cent, to 10303.15, extending a four-day slide that's seen the blue-chip index fall 3.3 per cent this week.

The slump came as weak economic data and a gloomy Federal Reserve statement lent more credibility to fears that the flagging economic recovery could turn into a double-dip recession.

Investors "got a big jolt from the Fed this week that just shifted positions dramatically from just two weeks ago when they felt that the economy was gaining some traction," said Bruce Bittles, chief investment strategist at Robert W. Baird.

The market's retreat was a stark reminder of the Fed's power to affect confidence, said Albert Meyer, portfolio manager for the Mirzam Capital Appreciation Fund. With the recent spate of downbeat news, he added, the danger is that "we keep talking ourselves into a recession."

The Standard & Poor's 500-stock index slipped 0.40 per cent to 1079.25, while the Nasdaq Composite declined 0.77 per cent to 2173.48. The S&P 500 was off 3.8 per cent on the week, while the Nasdaq tumbled even more, losing 5.0 per cent.

Tech stocks, along with consumer-discretionary shares, were the the worst-performing sectors on Friday. J.C. Penney shed 4.7 per cent after the department-store retailer swung to a profit in the second quarter, but offered cautious earnings and revenue forecasts. Nordstrom and Urban Outfitters followed, shedding 7.2 per cent and 2.3 per cent respectively.

Stock-trading volume was notably thin, reflecting the generally quiet summer as well as tepidness about the market's direction. About 3.4 billion shares changes hands in NYSE Composite volume, well off the average 5.4 billion shares.

Investors instead were attracted to the safety of the dollar and Treasurys.

The U.S. Dollar Index, reflecting the U.S. currency against a basket of six others, climbed 0.3 per cent. Treasurys rose, pushing the yield on the 10-year note down to 2.681 per cent.

"People want certainty right now and it's hard to find," said King Lip, chief investment officer at Baker Avenue Asset Management. "Where we are now, the bearishness in the market is so thick that you can cut it with a knife."

Crude fell, while gold was flat. The euro sank to a three-week low against the dollar and was recently at US$1.2752, down from US$1.2827 late Thursday. A weaker-than-expected Italian auction, increases in Ireland's borrowing costs and a rise in the net borrowing of Spanish banks helped reignite investors' worries about the euro-zone economy.

Friday's round of U.S. economic releases included a rise in consumer sentiment and U.S. retail sales, which was a small reprieve from the spate of discouraging economic numbers that had been released earlier in the week. Still, the data weren't all positive.

The retail sales gain was driven by cars and gas as demand fell in many other categories, indicating consumers are still reluctant to spend amid high unemployment and a bleak housing market. Meanwhile, a bigger-than-expected rise in U.S. business inventories came as sales fell, suggesting the growth in stockpiles was involuntary.

There was a glimmer of hope in U.S. deal activity, which indicated some companies are willing to put the US$1.8 trillion in cash stockpiled by U.S. non-financial companies to work through acquisitions. Dynegy surged 63 per cent after private-equity giant Blackstone Group agreed to buy the energy company for about US$542 million while assuming billions in debt, valuing Dynegy shares at US$4.50 each, a 62 per cent premium from Thursday's close. Blackstone Group slipped 3.5 per cent.

International Business Machines agreed to acquire Unica for about US$480 million, a move aimed to help the technology giant offer customers tools to create more-targeted marketing campaigns. Unica shares more than doubled, while IBM edged down 0.3 per cent.

Pharmaceutical company Eli Lilly said it lost its patent dispute over attention-deficit hyperactivity disorder drug Strattera, opening the gates for a generic to hit the market. Lilly's shares fell 2.5 per cent.