The stock market closed out a dismal week with another sell-off Friday as investors pondered whether share prices are heading toward more bruising losses after Memorial Day.
A fresh pickup in oil prices and a drop in existing-home sales capped a week in which burgeoning optimism about the economy yielded suddenly to fears of inflation and diminished consumer spending.
The Dow Jones industrial average slumped 145.99 points, or 1.2%, to 12,479.63. For the week, it declined 3.9% and is now down 12% from its record high last in October. But the blue-chip index remains up 6.3% from its low set in March when credit-crisis anxiety hit a peak.
The sell-off fixed the spotlight clearly on next week, with analysts saying the market's performance in the days immediately after the long weekend could go a long way toward setting its tone for much of the summer.
Continued selling could feed on itself and signal that a longer-term pullback was underway, while a flat or up market would indicate that the downward pressure is contained, they said.
"It's going to be an important week because it's either going to reinforce what happened this week and set a trend or it's going to wipe out" the losses, said Paul Hickey, co-founder of investment research firm Bespoke Investment Group in Harrison, N.Y. "It's going to tell us whether it's just a short-term blip or something more."
The market's near-term health is likely to continue to hinge on oil prices. After easing on Thursday, oil resumed its climb, finishing back above $132 a barrel. Already depressed airline and automobile stocks were pummeled.
"Oil, because it's such a front-page story all of a sudden, is going to drive the short-term market," said John Buckingham, chief investment officer at Al Frank Asset Management in Laguna Beach.
Some investors have feared a so-called double dip in which the market's rally from its March lows proves to be only a temporary respite within a sustained bear market.
But optimists contend the market was due for a breather after a 10-week recovery.
"We were probably a little overdue for some sort of short-term pullback, which was exacerbated by the news of the week," Buckingham said.
Volume has been light throughout the market's recent rally as well as this week's pullback, giving ammunition to both bulls and bears.
The housing market shows no sign that it will be generating positive news. The real estate industry reported that sales of existing homes fell 1% in April while the median home price sank 8% nationwide and inventories swelled 10.5%.
Shares of home builders slid on the report. D.R. Horton retreated 36 cents, or 2.7%, to $13.04. Los Angeles-based KB Home sank $1, or $4.7% to $20.52. An S&P; index of home builder stocks is down 16% for the week.
Among the day's market highlights:
The Standard & Poor's 500 index fell 18.42 points, or 1.3%, to 1,375.93, and the Nasdaq composite index slid 19.91 points, or 0.8%, to 2,444.67. The Russell 2,000 index of smaller-company stocks fell 8.91 points, or 1.2%, to 724.10. For the week, the S&P; gave up 3.5%, the Nasdaq lost 3.3% and the Russell 2,000 shed 2.3%.
Declining issues outnumbered advancers by about 7 to 3 on the New York Stock Exchange.
Government bond yields fell as investors sought the perceived safety of Treasury securities. The yield on the benchmark 10-year T-note fell to 3.84% from 3.91% late Thursday. The dollar fell, while gold prices rose.
Shares of Ford Motor sank 29 cents, or 4.1%, to $6.87 after the automaker said Thursday that it probably wouldn't return to profitability next year as it had promised. General Motors stock tumbled 83 cents, or 4.5%, to $17.60, its lowest level in 26 years.
Airline stocks continued the slide they began after American Airlines parent AMR said Wednesday that it was cutting flights and adding fees to cope with rising oil prices. US Airways Group tumbled $1.04, or 20%, to $4.18. United Airlines parent UAL dropped 7.7%; Northwest Airlines lost 32 cents, or 5%, to $6.02; and AMR fell 24 cents, or 3.7%, to $6.32.
Anheuser-Busch investors had reason to toast its shares after they hit an all-time high on reports that Europe's InBev was moving toward a $46-billion bid for the St. Louis-based brewer, whose stock jumped $4.03, or 7.7%, to $56.61.
Shares of Pacific Sunwear of California slumped $1.16, or 11%, to $8.95 after the Anaheim teen-apparel retailer said Thursday that its annual earnings would be shy of estimates.
Gap slid 35 cents, or 2%, to $17.94 after the retailer's sales in its latest quarter fell short of Wall Street's expectations.
Foot Locker jumped $1.46, or 12%, to $13.54 after reporting better results than analysts had forecast.
In overseas markets, key stock indexes declined 1.5% in Britain, 1.8% in Germany and 1.9% in France. Shares advanced 0.2% in Japan.
Times wire services were used in compiling this report.