Tepid forecasts from railroads worry traders as weaker oil hits energy stocks; Dow falls 109

Stocks end week lower as investors take profits

NEW YORK — Investors dumped stocks and locked in profits Friday after the glow of a week full of strong earnings reports faded.

The retreat came as cautious forecasts from railroads caused unease about the economy and a rising dollar pushed prices of commodities lower, which hurt materials and energy stocks. The Dow Jones industrial average fell 109 points to end the week with a modest loss.

Traders appeared eager to collect gains after earnings reports for the July-September quarter came in far stronger than forecast, which had pushed stock indexes up more than 6 percent in the three weeks leading into Friday.

“We’ve had such a great run that you’re going to get people taking money off the table, especially at the end of the week,” said Dr. Bob Froehlich, senior managing director at Hartford Financial Services.

Analysts have been calling for stocks to take more breaks after a seven-month rally that raised questions about whether the market was getting ahead of itself. The Standard & Poor’s 500 index is up 59.6 percent since March, though it’s still down 31 percent from its peak two years ago.

The day’s drop came despite some pieces of good news. The National Association of Realtors reported that existing home sales posted their biggest increase in 26 years in September, while shares of Amazon.com rode to a new high after the Internet retailer’s earnings and forecasts came in much stronger than expected. Amazon’s gains as well as a jump in Microsoft Corp. after its own strong earnings helped limit the losses of the technology-heavy Nasdaq composite index.

However, the strong results from Amazon and Microsoft couldn’t erase concerns over a poor outlook and sharp profit drop from chipmaker Broadcom Corp. or the pessimistic forecasts from railroad CEOs.

Union Pacific’s CEO Jim Young said he expects the economy to “limp along” until unemployment starts to fall, while Burlington Northern also issued a tepid forecast. Railroads are seen as an early indicator of economic activity because of the key role they play in shipping goods to manufacturers and markets.

Linda Duessel, equity market strategist at Federated Investors, said the market needed to pause after the massive surge it has made over the past seven months.

“The run-up has been too fast,” she said. “You need to consolidate.”

The Dow fell 109.13, or 1.1 percent, to 9,972.18. The S&P 500 index fell 13.31, or 1.2 percent, to 1,079.60. The Nasdaq fell 10.82, or 0.5 percent, to 2,154.47.

For the week, the Dow lost 24 points, or 0.2 percent. The S&P 500 index fell 0.7 percent and the Nasdaq lost 0.1 percent.

The major indexes closed at their highest levels in a year on Monday but zigzagged the rest of the week as investors digested a rush of earnings reports and grappled with worries that stocks are overheated.

Bond prices fell Friday, sending their yields higher. The yield on the benchmark 10-year Treasury note rose to 3.49 percent from 3.42 percent late Thursday.

The dollar rose against most other major currencies. That pushed down oil, which becomes more expensive for overseas buyers when the dollar strengthens. Crude oil fell 69 cents to settle at $80.50 per barrel on the New York Mercantile Exchange.

Frederic H. Dickson, chief market strategist at D.A. Davidson & Co. in Lake Oswego, Ore., said some stock market investors held off selling because profit reports have been better than expected.

“I think what we have seen is maybe the temptation to take profits postponed a bit because of the exceptional earnings numbers,” he said.

Fewer than half of the companies in the S&P 500 index have reported third-quarter earnings, but so far earnings from eight of 10 companies have exceeded analysts’ forecasts, according to Thomson Reuters.

Next week brings reports from Kellogg Co., Procter & Gamble Co. and Exxon Mobil Corp. Reports are due on sales of new homes, consumer confidence and demand for big-ticket manufactured items.

Friday’s report from the National Association of Realtors was seen by some as an aberration. Existing home sales rose 9.4 percent as buyers raced to complete purchases before a tax credit expires at the end of November. The pace of the gain was the strongest in two years and nearly double what analysts had expected.

Among companies posting earnings, Union Pacific fell $3.39, or 5.6 percent, to $57.73 and Burlington Northern fell $5.50, or 6.5 percent, to $79.12.

Amazon jumped $25.04, or 26.8 percent, to $118.49 after its third-quarter earnings jumped 68 percent and it forecast more than 20 percent growth for the current quarter. The stock logged a high of $119.65.

Microsoft’s earnings fell 18 percent, largely because it deferred revenue when it let buyers of PC’s over the summer get free upgrades to Windows 7, which the company released this week. The stock rose $1.43, 5.4 percent, to $28.02.

Broadcom fell $2.23, or 7.3 percent, to $28.50 after the company’s earnings fell by half. CEO Scott A. McGregor disappointed investors with a cautious forecast. “There’s a little concern about whether Santa’s coming this year or not,” he said on a conference call.

Three stocks fell for every one that rose on the New York Stock Exchange, where consolidated volume came to 4.8 billion shares, compared with 5.3 billion Thursday.

Overseas, Britain’s FTSE 100 climbed 0.7 percent, Germany’s DAX index fell 0.4 percent and France’s CAC-40 lost 0.3 percent. Japan’s Nikkei stock average rose 0.2 percent.

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The Dow Jones industrial average closed the week down 23.73, or 0.2 percent, at 9,972.18. The Standard & Poor’s 500 index fell 8.08, or 0.7 percent, to 1,079.60. The Nasdaq composite index fell 2.33, or 0.1 percent, to 2,154.47.

The Russell 2000 index, which tracks the performance of small company stocks, fell 15.32, or 2.5 percent, for the week to 600.86.

The Dow Jones U.S. Total Stock Market Index — which measures nearly all U.S.-based companies — ended at 11,008.59, down 103.26, or 0.9 percent.