Stocks fell 3.5% on Friday to cap off another brutal week for investors, but it could have been a whole lot worse.
Following sharp declines in overseas markets, U.S. index futures traded “limit down” Friday morning, down more than 6% and the maximum decline allowed in overnight futures trading. The Dow and S&P tracking stocks kept trading, however, and they showed a decline of at least 2% more than that before markets opened.
The indexes opened 6% lower, but then spent the rest of the day bouncing around above that level, and even pared their losses considerably before falling again in the final few minutes of trading.
Despite earnings reports from the likes of Microsoft (NASDAQ: MSFT) and Juniper (NASDAQ: JNPR) that suggest that things may not be as bad as feared, investors continue to worry about the potential for a deep global recession caused by a U.S.-led financial crisis that is rapidly spreading.
Stocks have suffered through their worst October since 1987, down about 25% for the month amid forced liquidation by hedge funds and others in the wake of the mid-September failure of Lehman Brothers.
Next week will likely see a negative third-quarter GDP report, the second in the last year, as the U.S. inches closer to the commonly accepted definition of a recession: two consecutive quarters of declining GDP. The fourth quarter isn’t likely to be much better after starting with a sharp slowdown and crippling credit crunch. Also next week, the Federal Reserve is widely expected to cut interest rates by another 50 basis points, bringing interest rates back to the lows set earlier this decade. The government is also expected to move ahead with investments in banks as it begins to implement a massive rescue plan.
Western Digital (NYSE: WDC) rose more than 12% on its results, and EMC (NYSE: EMC), VMware (NYSE: VMW) and Emulex (NYSE: ELX) were other big gainers.
Foundry (NASDAQ: FDRY) fell and Brocade (NASDAQ: BRCD) rose after Foundry delayed a vote on the companies’ merger until next Wednesday, citing recent developments. There has been some speculation that Brocade may lower its offer for Foundry because of the tight credit markets.
Avid (NASDAQ: AVID) and Ariba (NASDAQ: ARBA) tumbled on their results.
The Nasdaq fell 51 to 1552, the S&P lost 31 to 876, and the Dow lost 312 to 8378. Volume declined to 6.6 billion shares on the NYSE, and 2.63 billion on the Nasdaq. Decliners led by a 28-6 margin on the NYSE, and 22-6 on the Nasdaq. Downside volume was 85% on the NYSE, and 81% on the Nasdaq. New highs-new lows were 17-1147 on the NYSE, and 4-857 on the Nasdaq.