Report depresses stocks
The stock market finished the week with a decline Friday as the financial health of the consumer came into focus after a government report showed the weakest growth in personal spending in 17 months.
The major indexes turned in a mixed performance for the week.
After weeks of concentrating on interest rates and the credit problems of financial firms, the market was forced to pay attention to the consumers who drive economic growth. The Commerce Department said personal spending ticked up a paltry 0.1% last month, in line with Wall Street’s expectations. But that news and a profit warning from J.C. Penney Co. raised concerns about the well-being of consumers.
Investors felt some relief after the government said a closely followed inflation gauge tied to consumer spending rose only 0.1% with often-volatile energy and food costs excluded. The reading -- the Federal Reserve’s preferred measure of inflation -- was up 2% over the last 12 months. With so-called core inflation back within the Fed’s target of 1% to 2%, it could be easier for the central bank to justify further interest rate cuts without fear of driving up prices by adding too much money to the economy.
Trading was fairly muted after days of volatility that sent stocks sharply higher early in the week and sharply lower near the end. Investors were able to set aside some concerns about the effects of the credit crisis on the financial sector, but that gave them more time to think about the economy.
“I’m viewing a day like today as sort of a continuation from where we were a month or two ago,” said Les Satlow, portfolio manager at Cabot Money Management in Salem, Mass. “The U.S. recession concerns have resurfaced. They never went away but there was the beginning of the sense that this recession was going to be shallow and maybe a bit benign.”
The Dow Jones industrial average fell 86.06 points, or 0.7%, to 12,216.40, marking its third straight decline.
Broader stock indicators fell more sharply. The Standard & Poor’s 500 index slid 10.54 points, or 0.8%, to 1,315.22, and the Nasdaq composite index dropped 19.65 points, or 0.9%, to 2,261.18.
The Russell 2,000 index of smaller-company stocks dropped 9.21 points, or 1.3%, to 683.18.
Declining issues led advancers by 2 to 1 on the New York Stock Exchange.
For the week, the Dow fell 1.2% and the S&P; 500 dropped 1.1%. The Nasdaq, however, finished up 0.1%, and the Russell 2,000 gained 0.3%.
“This has almost been a week of pause,” said Jack Caffrey, equity strategist at JPMorgan Private Bank, suggesting that investors were witnessing a calm before the storm of first-quarter earnings in April. “The markets didn’t move all that much. And more importantly, volumes were noticeably lower.”
One trading session remains in what has been a dismal first quarter, and many investors are probably eager to close the books on the losses and start fresh Tuesday.
Investors will have plenty of economic data to pore over next week as the market tries to determine whether the country is indeed in the midst of a recession. Perhaps most watched will be Friday’s Labor Department report on payrolls, which economists on average estimate fell by about 50,000 in March after a 63,000 drop in February. Economists also expect to learn that the unemployment rate went back up to 5% from February’s 4.8%.
The market also will be monitoring the Institute for Supply Management’s national manufacturing report Tuesday. Economists expect data suggesting a shallow contraction in March, similar to February’s. The institute’s snapshot of the service sector, due Thursday, also is expected to show a contraction in March from February.
Treasury bond yields fell along with stocks Friday. The yield on the benchmark 10-year Treasury note dropped to 3.44% from 3.53% late Thursday. The dollar was mixed against other major currencies, while gold prices fell.
Oil futures fell $1.96 to $105.62 a barrel on the New York Mercantile Exchange.
As Wall Street tries to determine the degree to which the economy is slowing, any news that consumers are less willing to reach into their wallets is unwelcome. Consumer spending accounts for about 70% of U.S. economic activity.
J.C. Penney’s warning gave investors a reason to be concerned. The retailer predicted a first-quarter profit of 50 cents a share, down from an earlier target of 75 cents to 80 cents. The company’s stock fell $3.04, or 7.5%, to $37.48.
The rest of the retail sector followed J.C. Penney down. Kohl’s fell $2.19, or 4.9%, to $42.33. Higher-end retailers lost ground as well. Macy’s slid $1.39, or 5.9%, to $21.97, while Nordstrom declined $1.97, or 5.7%, to $32.62.
In Europe, key stock indexes fell 0.4% in Britain, 0.3% in Germany and 0.5% in France. In Japan, shares jumped 1.7%
