Stocks opened higher but quickly reversed to the downside on Friday, giving more attention to a surge in oil prices and some negative retail earnings reports than to a surprisingly strong April housing starts report. A closely watched gauge of the U.S. consumer's mood fell to its lowers level in nearly three decades.
In early trading Friday, the Dow Jones industrial average was down 29.72 points, or 0.23%, at 12,962.94. The broader S&P 500 index declined 2.84 points, or 0.2%, to 1,420.73. The tech-heavy Nasdaq composite index fell 13.16 points, or 0.52%, to 2,520.57.
The markets will be listening to hear what U.S. Treasury Secretary Henry Paulson has to say about U.S. credit and housing markets at noon on Friday. The dollar index was lower, while gold prices were up.
Capping a busy week for economic reports, The Commerce Department said that U.S. housing starts rebounded 8.2% in April to a seasonally adjusted annual rate of of 1.03 million units -- above the median estimate -- thanks to a 40.5% surge in construction of apartment buildings. The increase in housing starts was the biggest jump in two years.
The signals are mixed for single-family homes, however, with starts down a further 1.7% in April and permits rising 4.0% (the first increase since March 2007), said John Ryding, chief U.S. economist at Bear Stearns & Co. in an email note. He advised against reading much into the rise in permits and said the decline in housing starts over the last three months shows housing will continue to be a significant drag on growth in the second quarter.
U.S. consumer sentiment dropped further to 59.5 in the preliminary Reuters/University of Michigan report for May, the weakest reading since June, 1980, from 62.6 in April. The current economic conditions index fell to 71.7 from 77.0 previously. The economic outlook index fell to 51.7 from 53.3.
The inflation indexes really took off, notes Action Economics, with the 1-year median rate rising to 5.2 from 4.8% in April (it was 3.4% in January). The 5- to 10-year index edged up to 3.3% from April's 3.2% (it was 3.0% in January).
The weakness isn't too surprising for the markets, but the inflation gauges might capture traders' attention Friday, says Action.
Yahoo (YHOO) Chairman Roy Bostock responded to activist investor Carl Icahn's proxy challenge to oust Yahoo's board with a letter saying Icahn had misunderstood the events that led to Microsoft's (MSFT) withdrawal of its takeover offer and saying Icahn should not be allowed to take control of the board.
General Electric (GE) announced that it was reviewing strategic options for its Appliances business. The company is currently considering three possibilities for the unit: a strategic partnership or joint venture; spin off; or the sale of the business.
Traders were prepared for more whiplash in the oil markets with oil prices back up above $127 per barrel on an increased oil price forecast from Goldman Sachs on bets that Chinese diesel demand for electricity after Monday's earthquake will drain limited supplies, according to Bloomberg News. Goldman raised its oil price forecast to $141 per barrel for the second half of 2008.
June WTI crude oil futures were trading $3.31 higher at $127.43 per barrel, supported mainly by demand for distillates.
Among other stocks in the news Friday, Abercrombie & Fitch (ANF) posted a profit of 69 cents per share in the first quarter vs. 65 cents a year ago on a 3% decline in same-store sales and 8% higher total sales. Same-store sales rose 3% at Abercrombie & Fitch stores. The company reaffirmed its previously disclosed EPS guidance of $1.61-$1.65 for the first half of fiscal 2009 and said the low end of the range reflects a negative 2% same-store sales scenario for the second quarter.
Eli Lilly & Co. (LLY) said a pivotal non-small cell lung cancer (NSCLC) clinical trial shows that lung cancer patients whose histology is factored into treatment decisions may fare better as a result. The drug maker notes that data from the trial, which involved Lilly's ALIMTA (pemetrexed for injection), will be presented at am upcoming annual meeting of the American Society of Clinical Oncology (ASCO) in Chicago in late May to early June.
Major European indexes were trading higher Friday. In London, the FTSE 100 index rose 1.33% to 6,334.80. In Paris, the CAC 40 index gained 0.83% to trade at 5,099.71, while Germany's DAX index was up 1.61% at 7,195.14.
In Asia, Japan's Nikkei 225 ended 0.23% lower at 14,219.48, while Hong Kong's Hang Seng index rose 0.41% to 25,618.86.
Treasury market
Treasuries were lower on Friday in response to the stronger housing figures. The 10-year note moved down in price to 100-05/32 for a yield of 3.85%, and the 30-year bond slipped to 96-25/32 for a yield of 4.57%.