Stocks skidded Friday after a key survey showed manufacturing unexpectedly contracted in November, stoking concerns about a weakening economy.
Stocks and the dollar were socked after the Institute for Supply Management said its index on manufacturing fell to 49.5 from 51.2 in October. Economists had been expecting 51.5. Anything under 50 indicates the manufacturing sector is contracting.
The Dow Jones Industrial Average fell, as did the S&P 500 index and Nasdaq composite index.
For the week, the Dow fell 0.7%, the S&P fell 0.3%, and the Nasdaq gave up 1.91%. The indexes are still higher for the year. The Dow is up 13.8% so far, while the S&P has gained 11.9% and the Nasdaq is up 9.4%.
The ISM report, based on a survey of corporate purchasing managers, was seen by some
market-watchers as possibly indicating that the Federal Reserve might have overshot the mark in more than two years of interest rate hikes that ended in June.
Investors had been expecting the Fed would hold interest rates steady at its Dec. 12 meeting, and now there is a growing belief the central bank may soon cut rates because of economic weakness. Fed officials, however, made clear on Friday that inflation, not the slowing conomy, is their biggest worry.
Not Just Housing and Autos
"This is just additional confirmation that the economy is not only slowing but quite possibly going into a recession," said Hugh Moore, a partner with investment firm Guerite Advisors. "It's not just the housing and auto industry any longer, now we're finding out that manufacturing in general is slowing."
Moore said an ISM number below 50 has preceded every U.S. recession since the 1960s.
Leading the Big Board lower in volatile trading were shares of manufacturers
like 3M , Caterpillar , and US Steel.
The ISM news had a big effect on other markets. Bond prices rose, with the yield on the benchmark 10-year Treasury note falling to an 11-month low of 4.43% from 4.46% late Thursday.
The dollar continued its slide against major currencies, except the yen. Also hitting the dollar was a Commerce Department report that U.S. construction spending took its biggest tumble in five years during October.
Still, Wall Street, which on Monday had its worst decline in four months because
of poor sales at Wal-Mart Stores , suffered only moderate damage from the
"Considering all of the bad economic news out there, we didn't see a monster sell off," said Todd Salamone, senior vice president of research at Schaeffer's Investment Research in Cincinnati. "This was a pullback that may have been needed to strike a little bit of fear that would be enough to create another unwinding. A lot of negative sentiment can be unwound."
Manufacturers Big Losers
Manufacturers were among the biggest decliners, touching sectors from chip makers to steel companies. These included heavy equipment maker Caterpillar, ntel , U.S. Steel and 3M.
Automakers were also in focus as they reported November car and truck sales. Ford fell after it reported U.S. sales slipped 9.6%, while DaimlerChrysler dropped after posting a 4.7%
rise. Toyota Motor's monthly sales surpassed Ford's--the No. 2 U.S.
automaker--for only the second time ever.
General Motors rose in heavy volume after reports that
financier Kirk Kerkorian dumped his stake in the world's largest automaker for
more than $800 million. He had about 28 million shares left, which were sold off
late Thursday. Investors seemed little
moved by the company's November auto sales report, which showed an increase of
H&R Block declined after the nation's largest tax preparer reported a wider-than-expected loss during the second quarter as its mortgage lending arm
continues to lose money.
The Russell 2000 index of smaller companies fell 4.95, or 0.63 percent, to 781.17.
Declining issues outnumbered advancers by about 2 to 1 on the New York Stock Exchange, where consolidated volume came to 2.83 billion shares, compared with 4.01 billion shares on Thursday.
Overseas, Japan's Nikkei stock average closed up. Britain's FTSE
100 closed down, Germany's DAX index fell and France's CAC-40 declined.