Stocks Close the Week Lower

The Dow falls 62.68 points to 8268.64, and the Nasdaq drops 9.07 points to 1680.14.

Author:: Robert Holmes
Publish date:: May 15, 2009 5:22 PM EDT

The Dow falls 62.68 points to 8268.64, and the Nasdaq drops 9.07 points to 1680.14.

Updated from 3:17 p.m. EDT

Stocks in the U.S. closed out the week with losses Friday following a government report showing inflation at the consumer level was higher than expected last month and comments from the chairman of the Federal Deposit Insurance Corp. that indicated management changes at financial firms may be coming.

After opening in positive territory, the

Dow Jones Industrial Average

retreated and closed lower by 62.68 points, or 0.8%, at 8268.64. The

S&P 500

gave back 10.19 points, or 1.1%, to finish at 882.88. The

Nasdaq Composite

also relinquished early gains and ultimately gave back 9.07 points, or 0.5%, to 1680.14.

The economic docket was in focus following the release of the consumer price index. The headline CPI number was unchanged in April, in line with expectations. However, the core number, which excludes food and energy, rose 0.3%, well above the consensus target of 0.1% and the biggest increase since July of last year.

Ian Shepherdson, chief economist with High Frequency Economics, said that while the core CPI figure was hotter than many economists expected, it doesn't change his mind that inflation will be tame over the near term.

"In short, this does not change our view that the pressure on core CPI is downwards and will remain so for the foreseeable future, though the markets likely will disagree for now," he said in an email.

Meanwhile, the University of Michigan said its consumer sentiment index rose to a preliminary reading of 67.9 in May from 65.1, the highest reading since September last year.

In other economic news, the

Federal Reserve

said industrial production fell 0.5% in April, slightly better than expectations. Capacity utilization fell to 69.1% from 69.4%, also better than consensus.

Long-term Treasury bonds were easing following the release of the data. The 10-year Treasury note was down 12/32 in price to raise the yield to 3.13%, and the 30-year bond slid 19/32 to yield 4.08%. The dollar was higher against the yen and the euro.

Through last week, the major averages had rallied more than 30% since the March lows, which lead to some profit-taking over the last five sessions. The Dow lost 3.5% this week, the S&P 500 fell 5%, and the Nasdaq shed 3.4%, snapping a nine-week winning streak for the tech-heavy index. Still, some market analysts argue that this step back should have been expected.

"I don't think it's a big deal, given the huge run we've had," said Paul Nolte, director of investments with Hinsdale Associates. "We've been looking for a correction for a while. It doesn't surprise us to see the market come down a little bit."

Several bank stocks traded lower on comments from FDIC Chairman Sheila Bair, who indicated that management teams at several financial institutions could be replaced in the wake of the government's stress tests.

"Management needs to be evaluated," Bair told

Bloomberg Television

in an interview to be aired this weekend. "Have they been doing a good job? Are there people who can do a better job?"

The FDIC released a statement clarifying Bair's comments in the

Bloomberg

interview, saying she did not suggest the federal government will remove bank CEOs.

"The

Bloomberg

story referencing Chairman Bair's discussion of management and board changes is misleading and does not provide the proper context of her comments," the FDIC said in a statement. "Chairman Bair said that management changes could happen based on the capital plans that an institution must submit to the government. She did not refer to CEOs specifically and the comment was in the context of capital plans submitted by the institutions."

Among banks found to be in need of capital by the government's stress tests,

Fifth Third

(FITB) - Get Report

dropped 5.6%,

Wells Fargo

(WFC) - Get Report

slid 3.2%,

Regions Financial

(RF) - Get Report

was lower by 2.6%,

KeyCorp

(KEY) - Get Report

gave back 2.2%,

Citigroup

was down 2%, and

Morgan Stanley

(MS) - Get Report

dipped 1.7%.

In other financial news, six insurers have been granted access to $22 billion from the Troubled Asset Relief Program as the government hopes to prevent the industry from getting battered further.

Hartford Financial

(HIG) - Get Report

Lincoln National

(LNC) - Get Report

Allstate

(ALL) - Get Report

Prudential Financial

(PRU) - Get Report

Principal Financial

(PFG) - Get Report

and

Ameriprise Financial

(AMP) - Get Report

were each approved by the government.

Hartford said late Thursday that it has preliminary approval to receive $3.4 billion, and Lincoln said it has been granted approval for $2.5 billion. Principal Financial said Friday it has also been approved for $2 billion. Ameriprise has elected not to accept funding.

Elsewhere,

Barclays

(BCS) - Get Report

is in talks about selling its asset management arm Barclays Global Investors, with potential bidders being private-equity group

BlackRock

(BX) - Get Report

and

Bank of New York Mellon

(BK) - Get Report

, according to a report in

The Financial Times

Barclays Global Investors could be sold for about $10 billion

, the report said. Shares of Barclays gave back early gains and closed down 0.3% at $15.86.

Elsewhere, government officials have pressured

Bank of America

(BAC) - Get Report

to revamp its board by bringing in directors with more banking experience, according to a report in

The Wall Street Journal

. The news comes as

Temasek Holdings said it has sold its 3.8% stake in BofA

at a loss that may total $4.6 billion, according to

Bloomberg

BofA shares slid 5.7% to end the week at $10.67.

General Motors

(GM) - Get Report

is nearing a deal that would slash its hourly labor costs by more than $1 billion a year and reduce its $20 billion pledge to the United Auto Workers to cover health care obligations,

The Wall Street Journal

reported.

Under the Treasury Department's direction,

GM and the UAW could finalize terms

as early as next week. But the plan is still in flux, the

Journal

reports, citing people familiar with the matter.

Meanwhile, GM notified 1,100 of its 6,000 dealerships Friday that the automaker is terminating their contracts by the end of 2010. The news comes after

Chrysler

said it would sever ties with nearly 800 dealerships across the U.S. as part of its bankruptcy restructuring process. GM shares lost 5.2% to close at $1.09.

In earnings news,

Abercrombie & Fitch

(ANF) - Get Report

shares were dropping more than 7% after the apparel retailer swung to a first-quarter loss that was worse than expected. The company said it is planning a strategic review of its Ruehl business, which is aimed at an older demographic. Abercrombie shares were down 4.2% to $26.10.

After Thursday's close,

Blockbuster

(BBI) - Get Report

said

profits plunged 42% in the first quarter

, missing expectations by 3 cents a share. Revenue dropped 20% from a year ago to $1.12 billion in the quarter. Shares of Blockbuster tumbled 28.1% to close at 82 cents.

Also after the bell Thursday,

Nordstrom

(JWN) - Get Report

posted a 32% decline in first-quarter profit

but raised its full-year outlook in anticipation of higher gross profit and an increase in credit-card revenue. Shares jumped 7.8% to $22.58.

Commodities were mixed. Oil was down $2.28 to close at $56.34 a barrel, and natural gas was lower by 10 cents to $4.18 per million British thermal units. On the other hand, gold futures rose $2.90 to $931.30 an ounce, and copper was flat at $2.01 a pound.