The Wall Street Journal-20080126-Rally in Stocks Fades on Rumors On Hedge Funds- Blue Chips Fall 1-38- As Some Investors Buy Gold- Treasurys
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Rally in Stocks Fades on Rumors On Hedge Funds; Blue Chips Fall 1.38% As Some Investors Buy Gold, Treasurys
The markets' wild week closed out on a negative note, as stocks slid and jittery investors again bid up prices for the traditional havens of Treasurys and gold.
Friday started out by continuing the bounce of the previous two days. Helping stocks at the open was Microsoft's strong earnings report late Thursday. The software giant reported record profits and expressed optimism about prospects for this year, even amid a faltering economy.
But the rosy glow faded in the afternoon amid widespread chatter about hedge funds or other Wall Street firms running into problems -- talk that was eerily reminiscent of rumors that emerged early last summer when the first cracks appeared in the mortgage market.
Stocks finished at their lows as the Dow Jones Industrial Average lost 171.44 points, or 1.38%, to close at 12207.17. Although the Dow is now down 8.0% for 2008, it managed to eke out a 0.9% gain for the week, snapping a four-week losing streak.
Even Microsoft finished the day in the red, falling 0.9%.
"The earnings news engendered a lot of enthusiasm early on, but the fact that it went negative tells you people have concerns about the sustainability of their numbers," said Peter Boockvar, equity strategist at Miller Tabak & Co.
As stocks fell, gold prices rose to a new Comex record, gaining $5.00 to $910.30 per ounce. The 10-year Treasury note rose 16/32, or $5 for each $1,000 invested, lowering the yield to 3.582%. But it wasn't all good news for bonds as ripples from the financial woes facing bond insurers kept prices of municipal bonds under pressure.
There was a return to selling pressure on financial stocks, which had led the market higher in the sharp rebound on Wednesday. Traders viewed the bounce in banks and brokerage stocks as temporary, and expect more negative news from the group in the weeks and months to come.
Mostly, though, traders said investors were on edge with more earnings news next week and a policy-setting meeting by the Federal Reserve. Overall, sentiment remains negative.
"A lot of nerves were frayed this week," said Miller Tabak's Mr. Boockvar.
The Nasdaq Composite Index fell 1.5% Friday, or 34.72 points, to 2326.20, down 0.6% for the week and off 12.3% so far this year. The Standard & Poor's 500-stock index fell 1.6%, or 21.46 points, to 1330.61. It rose 0.4% for the week but is down 9.4% year-to-date.
Much of the nervousness Friday surrounded hedge funds, and whether a large fund was unloading stocks amid big losses. One area of concern surrounds so-called quantitative funds, which base their trading on computer models and saw deep losses when stocks fell in August.
Losses are hitting those using a strategy known as price momentum, a bet that winning stocks will continue rising and losing stocks will keep falling.
Hurting these funds lately were unexpected tumbles in stocks that momentum players favored, including Apple, Google and a group of alternative energy stocks such as Sunpower.
Stocks the quants expected to continue falling, meanwhile, suddenly jumped higher, including bond insurers Ambac Financial and MBIA, as well as home builders such as Ryland Group.
