Stocks finished a dismal week with a mixed performance Friday as investors grappled with fears about insurers of distressed mortgage-backed bonds and anxiety about the broader economy.
The Dow Jones industrial average, which rose in earlier trading, fell more than 60 points, while the Nasdaq composite index managed a gain. Both ended the week down more than 4%, however, and it was the Dow's worst week, percentage-wise, since March 2003.
The market has been shaken in recent weeks by uncertainty surrounding bond insurers and whether they'll be able to handle huge losses in the value of mortgage-backed bonds.
On Thursday, Moody's Investors Service lowered its rating on the bond insurer Security Capital Assurance. Then at midday Friday, Fitch Ratings, another credit rating agency, put a series of mortgage-backed securities insured by MBIA on negative watch.
"The bond insurers are really on people's minds," said Kim Caughey, equity research analyst at Fort Pitt Capital Group. "This is a horribly complex issue."
If the ratings agencies downgrade more bonds and bond insurers, the moves could hurt the banks that own the bonds — and "just drive the credit markets into a downward spiral," Caughey said. "It's things happening further upstream that's making people nervous."
Financial stocks fell due to heavy selling in the corporate bond and leveraged loan markets, and meanwhile, soaring commodities prices hit retailers, said Miller Tabak equity strategist Peter Boockvar.
Crude oil prices jumped $3.66 to $91.77 a barrel on the New York Mercantile Exchange on expectations of disruptions in Nigerian exports.
Retailers, which posted poor sales figures Thursday, have said consumer spending is not only slowing because of problems in the housing market, but also because of high gasoline and food prices. Other businesses in the nation's service sector, which earlier this week reported a contraction in January, have struggled, too, with high commodities costs.
The Dow dropped 64.87, or 0.5%, to 12,182.13 — above its lows of the day, but well off its highs, too. The biggest losers among the 30 Dow companies were financial companies American Express and JPMorgan Chase.
Broader stock indicators were mixed. The Standard & Poor's 500 index fell 5.62, or 0.4%, to 1331.29, while the Nasdaq composite index rose 11.82, or 0.52, to 2304.85.
The Dow finished the week down 4.4%, the S&P 500 ended the week down 4.6%, and the Nasdaq finished the week 4.5% lower.
The technology-heavy Nasdaq fared better than the other indexes Friday thanks partly to Amazon.com, which authorized a $1 billion share buyback program. The online retailer rose $2.59, or 3.7%, to $73.50.
Government bond prices rose. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 3.65% from 3.73% late Thursday.
SCA plunged 60 cents, or 23%, to $2, and MBIA rose 40 cents, or 2.8%, to $14.60. Though MBIA's bonds were downgraded by Fitch, the market was pleased because late Thursday it boosted the size of a share offering to $1 billion from $750 million in response to oversubscription by investors.
A motley batch of corporate earnings failed to provide much reassurance to investors. Some companies such as software maker McAfee and jewelry maker Tiffany seem to be faring well despite the economic slowdown, but others, including paper and wood product maker Weyerhaueser, are struggling.
McAfee posted a better-than-expected fourth-quarter profit late Thursday and rose $2.92, or 9.2%, to $34.65. Tiffany rose $1.68, or 4.4%, to $39.86 after predicting fiscal 2008 earnings would beat its fiscal 2007 profit forecast, based on an expected 10% rise in global sales.
Weyerhaeuser swung to a fourth-quarter loss as the slumping housing market dampened demand for lumber; the company expects the downturn to extend through the year. Weyerhaeuser fell $2.37, or 3.7%, to $62.34.
And Alcatel-Lucent reported a $3.8 billion loss in the fourth quarter, eliminated its 2007 dividend, and predicted that 2008 would be a difficult year. Shares of the Franco-American company, which makes telecommunications equipment, fell 25 cents, or 4%, to $6.
The mix in corporate success has made it hard to determine how weak the economy is getting.
Data on Friday showing a higher-than-expected rise in U.S. wholesalers' inventories provided Wall Street with little new evidence about the economy's health. An increase can be positive, suggesting that companies are betting on a rise in demand, but it can also serve as a worrisome sign that inventories are building up unintentionally because demand is waning.
The dollar fell against other major currencies, while gold prices rose.
Declining issues outnumbered advancers by about 3 to 2 on the New York Stock Exchange, where volume came to 1.45 billion shares.
The Russell 2000 index of smaller companies fell 3.85, or 0.6%, to 698.93.
Overseas, Japan's Nikkei average closed down 1.4%. In Europe, Britain's FTSE 100 rose 1.1%, Germany's DAX index rose 0.5%, and France's CAC-40 fell 0.3%.