US stocks pulled back Friday after a government report stirred concerns that the economy may be slowing too much.
Investors have bid up stocks sharply in October on the notion that the economy is slowing, but not in a way that would threaten corporate profits and consumer spending. Investors are also counting on a gradual slowdown to reduce the threat of inflation and convince the Federal Reserve to lower short-term interest rates.
While investors expected Friday's advance reading on gross domestic product from the US Commerce Department would show slowing growth, the report underscored concern that a cooling housing market could spill over into other parts of the economy.
"I think that the market actually was poised for profit-taking and consolidation," said Quincy Krosby, chief investment strategist at The Hartford. She contends the GDP report gave investors an excuse to catch their breath after the recent run-up and called the pullback a healthy pause.
The Dow Jones industrial average was down 73.40, or 0.60 percent, at 12,090.26. The Dow Jones industrials achieved a new high close in each of previous four sessions and 13 of the previous 18 sessions.
Broader stock indicators also moved lower Friday. The Standard & Poor's 500 index slipped 11.74, or 0.85%, to 1,377.34, and the tech-heavy Nasdaq composite index fell 28.48, or 1.20%, to 2,350.62. Technology stocks retreated Friday afternoon following a report from Goldman Sachs Inc. that warned of weakness in orders for computer parts.
Over all, the major indices showed gains for the week despite Friday's decline. The Dow rose 0.73% for the week, while the S&P gained 0.64% and the Nasdaq added 0.36%. Despite the overall advances in the market, the S&P stands about 9.8% below its high close of 1,527.46 and the Nasdaq is even further off, at about 53%. All three indexes had peaked in early 2000 before plunging in response to the dot-com bust, recession and the 2001 terrorist attacks.
Bonds rose Friday, with the yield on the benchmark 10-year Treasury note falling to 4.68% from 4.72% late Thursday. The dollar was mixed against other major currencies, while gold prices rose.
The GDP, the broadest measure of the economy, showed growth slowed to 1.6% in the third quarter; economists had been expecting a 2.1% expansion. The report identified the slumping housing market as a significant drag on growth, as money pumped into homebuilding fell by the largest amount since 1991.
The University of Michigan reported that its consumer sentiment index rose to 93.6 for October from a reading of 85.4 last month, which provided some optimism. Oil prices, which hit lows for the year a week ago, and are down sharply from midsummer highs, have left more money in consumers' wallets.
Light, sweet crude settled up 44 cents to $60.75 a barrel on the New York Mercantile Exchange.
Subodh Kumar, chief investment strategist for CIBC World Markets, contended that the markets moved lower Friday as investors tried to balance expectations about the economy with Federal Reserve policy and oil prices. The central bank on Thursday left short-term interest rates unchanged, as expected, and offered a little-changed opinion on the health of the economy.
"The fact that there is a moderate pullback tells you that the overall market risk is not extreme," he said.
A flood of corporate earnings has held investor attention in recent weeks. Highest-ever profits from Chevron Corp. gave a dose of good earnings news Friday. Chevron, which rose 18 cents to $67.68, reported its third-quarter profit surged 40% to $5.02 billion, handily topping estimates. The year-ago quarter in part reflected costs tied to Hurricane Katrina.
Microsoft Corp. fell 1 cent to $28.34; the software company reported better-than-expected profits and raised its forecast.
Alltel Corp. declined $4.19, or 7.2%, to $53.99 after the wireless carrier's third-quarter profit, though up 11%, missed expectations.
BorgWarner Inc. fell $3.06, or 5%, to $58.25 after its third-quarter profit fell 36% as global sales failed to offset sizable production cuts by automakers in North America.
Ingersoll-Rand Co., which makes industrial equipment, declined $1.45, or 3.7%, to $37.45 after posting a 4% drop in its third-quarter earnings, in part because of tax expenses and lower sales of its Bobcat equipment. The company also said its fourth-quarter profit would come in below what Wall Street had expected.
Declining issues outnumbered advancers by about 2 to 1 on the New York Stock Exchange, where consolidated volume came to 2.74b. shares compared with 2.76b. shares Thursday.
The Russell 2000 index of smaller companies was down 10.20, or 1.31%, at 765.84.
Japan's Nikkei stock average closed down 0.85%. Britain's FTSE 100 ended down 0.39%, Germany's DAX index was down 0.34%, and France's CAC-40 fell 0.69%.
The Dow Jones industrials ended the week up 87.89, or 0.73%, to finish at 12,090.26. The S&P 500 index rose 8.74, or 0.64%, to 1,377.74.
The Nasdaq rose 8.32, or 0.36%, to end at 2,342.30.
The Russell 2000 index closed the week up 3.71, or 0.49%, at 765.84.
The Dow Jones Wilshire 5000 Composite Index - a free-float weighted index that measures 5,000 US based companies- ended the week at 13,820.42, up 102.70 points from last week. A year ago the index was at 11,759.89.