Another Down Week for Stocks

A small gain can't keep the Dow and S&P 500 from a 1.4% drop.
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Updated from 4:09 p.m. EST

A moderate gain Friday couldn't keep stocks from their second consecutive down week, as increasingly dicey world politics conspired with a now-chronically weak dollar to steal the stage from several positive economic developments.

The

Dow Jones Industrial Average

and

S&P 500

have now closed lower in eleven of the fourteen sessions since they hit new multimonth highs on Nov. 3.

For Friday, the Dow rose 9.11 points, or 0.1%, to 9628.53, the S&P climbed 1.63 points, or 0.2%, to 1035.28, and the

Nasdaq Composite

improved 11.96 points, or 0.6%, to 1893.88.

Volume was very light. On the

New York Stock Exchange

1.26 billion shares changed hands, while 1.59 billion shares traded on the Nasdaq.

On the week, the Dow finished down 1.4%, the S&P fell 1.4%, and the Nasdaq dipped 1.9%.

Improving economic conditions and positive earnings were consistently overshadowed by exogenous issues which combined to push the major averages lower for the second consecutive week. Equity markets appeared to be playing the blame game on a daily basis. Terror attacks, the collapsing dollar, rising trade tensions all vied for the top spot on the financial pages this week.

Thursday comments from

Federal Reserve

Chairman Greenspan had traders putting the onus on "creeping protectionism," as stocks struggled to make gains on Friday. The comments followed Tuesday's announcement that the Bush administration had enacted quotas against certain Chinese textiles, and about a week after the World Trade Organization ruled that the Administration's steel tariffs were illegal.

"Nearly everyone I talk to is worried about trade," said Richard Nash, chief market strategist at Victory Capital Management, to explain Friday's market action. There is growing concern that a trade war between the U.S. and its major shipping partners could, "seriously threaten the economy in 2004," he continued.

However, the biggest obstacle for stocks, as we approach year end, may be stretched valuations. Despite an interim correction over the past three weeks, the Dow is up some 15% year to date, the S&P 500 is more than 17% higher and the Nasdaq has surged a whopping 42%. Perhaps, portfolio managers and traders will look to lock in double-digit gains for the first time in several years, before the Thanksgiving holiday.

The 10-year Treasury bond fell 1/32, its yield rising to 4.16%. The dollar weakened slightly vs. both the euro and Japanese yen.

Crude oil futures fell 0.8% to $31.61 per barrel, and gold futures rose 0.6% to $396.00 an ounce.

Stocks in the News

Krispy Kreme's

(KKD)

third-quarter earnings rose to 23 cents per share, from 17 cents last year, in line with expectations. The company's shares sweetened $1.81, or 4.7%, to $40.51.

Morgan Stanley downgraded

Merck

(MRK) - Get Report

to equal weight from overweight after the company canceled further research on an experimental diabetes drug. The company's shares stumbled $2.91, or 6.4%, to $42.25.

Freddie Mac

(FRE)

said it understated earnings by a total of $5 billion over the past three years. The company reportedly used irregular accounting techniques and financial derivatives to smooth earnings and make the company's business appear less risky. Freddie shares were down 3 cents, or 0.1%, to $55.61.

Several companies released third-quarter earnings after Thursday's close.

Disney's

(DIS) - Get Report

third-quarter earnings rose to 17 cents per share, from 11 cents a year ago. This was a penny ahead of expectations. Disney shares fell 9 cents, or 0.4%, to $22.59.

Gap

(GPS) - Get Report

earned 28 cents in the third quarter, a penny ahead of expectations, and an improvement from 15 cents last year. The shares improved 20 cents, or 1%, to $20.79.

Nordstrom

(JWN) - Get Report

said it earned 33 cents per share in the third quarter, an 8-cent improvement over last year. Analysts had expected the company to earn 22 cents. J.P. Morgan upgraded the company to overweight from neutral. Nordstrom shares jumped $3.06, or 9.6%, to $34.88.

Overseas markets finished mixed on Friday, with London's FTSE rising 0.3% to 4319 and Germany's Xetra DAX up 0.1% to 3642. In Asia, the Nikkei fell 0.1% to 9853, and Hong Kong's Hang Seng declined 0.1% to 11840.

Looking ahead to Thanksgiving week, the earnings calendar is very light as third-quarter reporting season comes to a close.

On the economic calendar, third-quarter GDP is expected to be revised to 7.3% from the initial 7.2% estimate. New- and existing-home sales for October will be released, and should remain a significant driver of economic growth. Additionally, the latest readings from the both Conference Board and University of Michigan consumer confidence surveys will be released, at the unofficial start of the holiday shopping season.