Wall Street ended a stellar third quarter with a moderate decline Friday, as the Dow Jones industrial average pulled back further from record-high levels. The major indexes closed out the week, month and quarter with gains.
The day's economic news was gloomy and money managers made few bold moves as the quarter ended.
"This is possibly a short-term top," said Ken Tower, chief market strategist for Schwab's CyberTrader, said of the Dow's briefly surpassing its closing record of 11,722.98 on Thursday.
"The Dow has been flirting with an all-time high; the market may be due for a little rest as we enter October."
Stocks dipped after St. Louis Federal Reserve President William Poole said the Fed would continue to watch economic data as it sets interest rate policy. His comments were seen as leaving the door open to additional interest rate hikes if inflation necessitates them; traders had been hoping the hikes were over.
The Dow fell 39.38, or 0.34 percent, to 11,679.07. The blue chip index briefly crossed its closing high on Thursday, then fell back. It has yet to surpass its all-time trading high of 11,750.28; both highs were set January 14, 2000.
Broader stock indicators also fell. The Standard & Poor's 500 index fell 3.30, or 0.25%, to 1,335.85, and the Nasdaq composite index fell 11.59, or 0.51%, to 2,258.43. The S&P 500 remains near a 5 1/2-year high.
Bonds fell, with the yield on the 10-year Treasury note at 4.63%, up from 4.61% Thursday. The dollar was higher against other major currencies. Gold prices fell.
Crude oil futures rose. A barrel of light crude settled at $62.91, up 15 cents, on the New York Mercantile Exchange.
In economic news, the Commerce Department said consumer spending dropped in August by the largest amount in nearly a year and core inflation for August, which excludes volatile food and energy prices, was up a worrisome 2.5% compared to a year ago, the biggest year-over-year increase in more than a decade.
Inflation's increase was far above what the Federal Reserve has set as its "comfort zone" and the concern on Wall Street is that it could portend additional Fed hikes in its benchmark short-term interest rate.
The department said consumer spending, after adjusting for inflation, dropped by 0.1% last month, the first decline since a 0.3% fall in September 2005, a month when US business activity was disrupted by Hurricane Katrina. Income gains were anemic, rising by just 0.3% in August, the weakest performance in nine months.
The Dow's flirtation with a new high made investors nervous, said Scott Merritt, a US equity strategist for JPMorgan Asset Management. "It doesn't make a difference from a fundamental standpoint; it's psychology," he said.
For the week, the Dow rose 1.49%, the S&P gained 1.60% and the Nasdaq rose 1.78%.
Friday also marked the end of an unusually strong third quarter as stocks rebounded from their May and June tumble. The Dow gained 4.74% for the quarter, the S&P 500 rose 5.17% and the Nasdaq gained 3.97%. Declining prices for oil, commodities and real estate have once again made equities an attractive investment.
"Investors are getting out of commodities, getting out of residential real estate and getting into financial assets, including stocks," said UBS economist Maury Harris.
The markets also had a strong September. The Dow gained 2.62%; the S&P 500 rose 2.46% and the Nasdaq advanced 3.42%.
In company news, Dell Inc., the world's largest personal computer maker, fell 13 cents to $22.84 after it said it is increasing the recall of Sony Corp. battery packs used in its computers to 4.2 million units from 4.1m. units. The batteries can short-circuit and have been blamed for causing some computers in which they are used to overheat. Sony fell 80 cents to $40.36.
Wendy's International Inc. rose 43 cents to $67 after a federal judge told the hamburger chain it could go ahead with its planned Friday spinoff of its profitable Tim Hortons coffee and doughnut unit, rejecting a last-ditch effort by bondholders to block it.
Jabil Circuit Inc. fell 20 cents to $28.57 after it said it expects to record a $120.2m. charge related to its restructuring plan. Jabil, which makes electronics and other equipment for larger technology companies, said in a filing with the US Securities and Exchange Commission that it intends to incur the charge for the period ended August 31.
Drug maker Eli Lilly and Co. fell 32 cents to $57 after it said it would decide whether to sink another five years of development into a proposed treatment for a diabetic eye disease after the US Food and Drug Administration asked for additional data before granting approval.
The Russell 2000 index of smaller companies fell 6.97, or 0.95%, to 725.59.
Japan's Nikkei stock average rose 0.64%. Britain's FTSE 100 fell 0.18%, Germany's DAX index rose 0.25%, and France's CAC-40 was unchanged, but is up 11.34% for the year.
The Dow Jones industrials ended the week up 170.97, or 1.49%, to finish at 11,679.07. The S&P 500 index rose 21.07, or 1.60%, to 1,335.85.
The Nasdaq gained 39.50, or 1.78%, to end at 2,258.43.
The Russell 2000 index closed the week up 6.96, or 0.97%, at 725.59.
The Dow Jones Wilshire 5000 Composite Index - a free-float weighted index that measures 5,000 US-based companies - ended the week at 13,137.63, up 208.33 points from last week. A year ago the index was at 12,259.53.