Stocks head lower on last day of week, month, quarter
— -- NEW YORK -- Stocks plunged Friday, the last trading day of the quarter, as investors digested more disappointing news on the economy and continued to fret about the European debt crisis.
Investors were put out by a report on the economy from purchasing managers in the Midwest showing an unexpected sharp drop in its index, suggesting economic conditions are weakening. The Chicago purchasing management index fell to 49.7 in September from 53 in August. A reading below 50 over time indicates an economy that is not growing.
The Dow Jones industrial average was down more than 100 points in morning trading, a 0.8% drop, before recovering somewhat as lunchtime approached. The broader Standard & Poor's 500 index and the tech-laden Nasdaq composite index were both down more than 0.6%.
Investors had earlier learned that consumer spending rose 0.5% in August -- the biggest jump since February. But the Commerce Department said most of the increase went for higher gas prices.That meant less growth elsewhere for strained household budgets. Spending on items expected to last at least three years like appliances and automobiles, rose 0.3%. And incomes rose just 0.1%, reflecting weak job growth.
One exception to the sour mood on Wall Street: a 12% surge to just under $8 a share of Research in Motion, maker of Blackberry smartphones. The struggling device maker Thursday said sales were better than forecast, resulting in a smaller-than-expected quarterly loss. RIM's revenue came in at $2.9 billion, creating a loss of 27 cents a share.
Analysts expected revenue of $2.5 billion and a loss of 46 cents a share, says Shaw Wu of Sterne Agee in a note. Investors should remain cautious. The company expects an operating loss in the current quarter and its cash flow remains a "concern," Wu says. While RIM's valuation is "depressed," given the level of investor concern, Wu still rates the stock a "neutral," saying that competition from Google's Android mobile operating system and Apple remain m ajor issues. And RIM is amid a major transition by shifting consumers its own new operating system, the BB10 OS.
Trading is often complicated at the financial quarter's end as it is the deadline for certain trades and agreements to be settled. This sometimes involves buying and selling large amounts of stocks at the last minute in order to make a profit on a deal.
Investors remain cautious over Spain, a day after the country's government announced big spending cuts it hopes will convince potential bailout creditors and investors it has a rock-solid plan to heal its public finances.
The positive momentum ground to a halt as investors waited for the results of stress test results into 14 of the country's banks that are due after European markets close. The tests are expected to identify a capital shortfall of around â?¬60 billion ($77 billion).
Rating agency Moody's Investors Service is also expected to issue an evaluation of Spain's creditworthiness. There are concerns the agency will downgrade Spain's government debt to junk status.Craig Erlam, markets analyst at Alpari, said a downgrade to junk status could "create some panic" among holders of Spanish debt.
"The positive side to this is this could accelerate the bailout request," Erlam said. The other 16 countries that use the euro and the European Central Bank are prepared to help Spain financially, should it need it, but Madrid has so far put off a request.
Madrid's IBEX index was one of the worst performers in Europe as investors awaited developments. The IBEX was trading 1% lower at 7,759. Elsewhere, Germany's DAX was 0.7% lower at 7,243 while the CAC-40 in France fell 1.5% to 3,389. The FTSE 100 index of leading British shares was 0.3% lower at 5,736.
Other financial markets were fairly subdued, with the euro down 0.1% at $1.29 and a barrel of oil up 12 cents at $91.99.
Earlier in Asia, stocks had been buoyed by speculation that China's central bank will act soon to help the world's No. 2 economy.
Hong Kong's Hang Seng Index rose 0.4% to 20,840.38. South Korea's Kospi added nearly 0.4% to 1,996.21. But Japan's Nikkei 225 index lost 0.9% to 8,870.16, sinking on a government report that showed industrial production fell a further 1.3% in August.
Mainland Chinese shares rose ahead of an extended holiday next week. The Shanghai Composite Index gained 1.5% to 2,086.17 and the Shenzhen Composite Index rose 1.9% to 853.83.
Seasonally speaking, the stock market has sidestepped the September blues, shooting up 3% in what historically has been the worst month for stocks.
Starting Monday, Wall Street moves on to the fourth quarter, the best three-month span for returns over the past 20, 50 and 100 years, according to Bespoke Investment Group.
While turning the page of the calendar doesn't guarantee gains, the market's seasonal performance tendencies do provide a bullish road map. The final three months of the year have been especially kind to the Dow Jones industrials over the past 20 years. The Dow has risen 5.3% on average and been up 80% of the time.
But October, November and December this year are chock full of potentially big market-moving events that will require investors to stay alert and not get too complacent.
"It's going to be a bumpy path," says John Canally, investment strategist at LPL Financial.
Canally lays out a map of potential potholes that could trip up investors. The third-quarter earnings season, which kicks off in October, could be the worst since the financial crisis, he says.
"Most investors will be surprised by how weak earnings are," he says. Add in the uncertainty surrounding the November elections, the lame-duck session of Congress (which could decide if the economy falls off the fiscal cliff), and geopolitical risk in Europe and Middle East -- and investor anxiety is sure to be high.
Contributing: Associated Press