(RTTNews) - Stocks experienced another extremely volatile trading session on Friday, as traders weighed some weaker than expected economic data against better than expected earnings from some big name companies. The major averages bounced back and forth across the unchanged line once again.

With traders reacting negatively to a report from the Commerce Department showing a steep drop in housing starts in the month of September, stocks initially showed a steep downward move. The Dow was down more than 260 points at its low.

The Commerce Department report showed that housing starts fell 6.3 percent to an annual rate of 817,000 in September from the revised August rate of 872,000. Economists had expected starts to fall to 870,000 from the 895,000 originally reported for the previous month.

With the monthly decrease, housing starts fell to their lowest level since January of 1991. Starts in September were down 31.1 percent compared to the same month last year.

Nonetheless, while Peter Boockvar of Miller Tabak acknowledged that the data is not a good sign for GDP, he said, “It is exactly what is needed for the long term benefit of the housing industry in light of current inventory levels that are twice what is normal.”

In other economic news, Reuters and the University of Michigan released the preliminary results of their survey of consumers for the month of October, showing that the consumer sentiment index fell to 57.5 in October from a reading of 70.3 in September.

The decrease marked the biggest monthly drop on record and dragged the index down to its lowest level since June.

Stocks were unable to sustain the initial downward move, however, with positive earnings news from companies such as IBM (IBM), Google (GOOG), and Honeywell (HON) helping to keep selling pressure somewhat subdued.

The markets subsequently staged a substantial turnaround over the course of the trading day, with strength among resource stocks contributing to the turnaround. At its high for the session, the Dow was up more than 300 points.

The major averages moved back to the downside going into the close, however, pulling back into negative territory. The Dow closed down 127.04 points or 1.4 percent at 8,852.22, the Nasdaq closed down 6.42 points or 0.4 percent at 1,711.29 and the S&P 500 closed down 5.88 points or 0.6 percent at 940.55.

Despite the losses for the session, the major averages still all closed higher for the week. The Dow posted a weekly gain of 4.7 percent, while the Nasdaq and the S&P 500 closed up 3.7 percent and 4.6 percent, respectively.

Sector News

Gold stocks turned in some of the market’s worst performances, resulting in a 3.3 percent loss by the Amex Gold Bugs Index. The loss extended a recent downward move by the index, which ended the session at a new three-year closing low.

A continue decrease by the price of gold contributed to the weakness among gold stocks, with gold for December delivery closing down $16.80 at $787.70 an ounce. The price of the precious metal hit a monthly intraday low of $772.20 an ounce in mid-day trading.

Weakness was also visible in the banking sector, as reflected by the 3.5 percent loss posted by the KBW Bank Index. Zions Bancorp (ZION) helped to lead the sector lower after reporting sharply lower third quarter earnings.

Some trucking, semiconductor, and defense stocks also ended the session firmly in negative territory. Among trucking stocks, shares of YRC Worldwide (YRCW) closed down 8 percent after the company said it issued 1.7 million shares of its common stock to pay down debt.

Meanwhile, natural gas stocks posted particularly strong gains, contributing to a 3.7 percent gain by the Amex Natural Gas Index. The index ended the week well off the three-year closing low it set last Friday.

The strength among natural gas stocks came amid a notable increase by the price of natural gas, with natural gas for November delivery closing up $0.083 at $6.786 per million British thermal units. Questar (STR) and Williams (WMB) turned in two of the sectors best performances.

Despite an increase by the price of oil, significant strength was also visible in the airline sector, as reflected by the 3.7 percent gain posted by the Amex Airline Index. With the gain, the index moved further off the nearly three-month closing low it set last Thursday.

A variety of other sectors also showed strong upward moves, with some brokerage, telecom, and internet stocks posting notable gains. Within the internet sector, Google closed up 5.5 percent after reporting better than expected third quarter earnings.

Dow Components

A significant majority of the Dow components ended the trading session in negative territory, contributing to the loss posted by the blue chip index. Of the thirty Dow components, only six ended the day above the unchanged line.

Caterpillar (CAT) turned in one of the Dow’s worst performances, with the construction equipment manufacturer closing down 7.2 percent. With the loss, shares of Caterpillar ended the session at a nearly four-year closing low.

Reflecting the weakness in the banking sector, Citigroup (C) and Bank of America (BAC) also posted notable losses. Shares of Citigroup ended the session down 6.4 percent, while shares of Bank of America fell 4.2 percent.

Other Dow components that posted notable losses include United Technologies (UTX), Coca-Cola (KO), and Alcoa (AA).

On the other hand, Kraft (KFT) turned in a strong performance, moving further off the all-time closing low it set on Wednesday. Kraft ended the session up 4.1 percent after Merrill Lynch upgraded its rating on the company’s stock to Buy from Neutral.

Home Depot (HD), Disney (DIS), and Merck (MRK) also posted notable gains, helping to limit the downside for the Dow.

Other Markets

In overseas trading, the stocks markets in the Asia-Pacific region turned in a mixed performance on Friday. While notable weakness was visible among stocks in Hong Kong, South Korea, and Australia, Japanese and Chinese stocks ended the day mostly higher.

Meanwhile, the major European markets all ended the day higher. The French CAC 40 Index and the German DAX Index closed up 4.7 percent and 3.4 percent, respectively, while the U.K.’s FTSE 100 Index posted a 5.2 percent gain.

In the bond market, treasuries showed a lack of direction over the course of the trading day, with the benchmark ten-year note eventually ending the day nearly unchanged. Subsequently, the yield on the ten-year note closed up less than a basis point at 3.938 percent.

Looking Ahead

While the economic calendar for next week is relatively light compared to the slew of data that was released this week, traders are still likely to keep an eye on reports on existing home sales and leading economic indicators.

Earnings are likely to be the main focus as the reporting season picks up steam. Microsoft (MSFT), Pfizer (PFE), Apple (AAPL), Wachovia (WB), Yahoo (YHOO), and AT&T (T) are among the big-name companies due to release their quarterly results next week.

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Posted in Categories: Australia, Economy, Eurozone, Japan, Releases, UK, USA.

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