Stocks ended a lackluster week with a moderate decline Friday, as higher oil prices weighed on investors’ already rickety sentiment and Treasurys rallied amid concerns about a meltdown in the subprime mortgage market.
It was the worst week for the Dow Jones industrial average since mid-August. The broader market indexes were mixed for the week.
The pullback followed several mixed sessions in which the tech-dominated Nasdaq composite index showed slight gains but blue chip stocks have pulled back in part amid inflation concerns. Oil settled at its highest level of the year Friday, eclipsing a high for the year set Thursday.
Bond prices rose Friday, rebounding from a sell-off a day earlier, as investors sought quality amid concerns that subprime lenders would be forced to book big write-downs for consumers who were unable to keep up with payments. The yield on the benchmark 10-year Treasury note fell to 4.68 percent from 4.73 percent late Thursday.
“The defaults that you’re seeing in the subprime market are a bit of a wake-up call for investors. I think you’re going to see a continued flight to safety,” said James Sonneborn, wealth manager at RegentAtlantic Capital LLC.
The Dow Jones industrial average finished the day down 38.54 points, or 0.30 percent, while the broader Standard & Poor’s 500-stock index was off 5.19 points, or 0.36 percent, and the Nasdaq composite index lost 9.84 points, or 0.39 percent.
For the week, the Dow industrials lost 0.94 percent, the S&P 500 was off 0.35 percent, but the Nasdaq composite index added 0.75 percent.
The dollar was mixed against other major currencies Friday, while gold prices rose. Light, sweet crude settled up 19 cents at $61.14 on the New York Mercantile Exchange.
Investors looking for direction in the final session of a holiday-shortened week ultimately showed little reaction to comments from Federal Reserve officials. Dallas Fed President Richard Fisher said weakness in housing might be keeping inflation in check and that inflation might be showing signs of easing. His comments appeared in line with those made by Fed Chairman Ben Bernanke last week.
In addition, San Francisco Fed President Janet Yellen reiterated her contention that the Fed should remain vigilant about inflation and raise interest rates if necessary. Neither Fisher nor Yellen have a vote on the Federal Open Market Committee, which sets short-term interest rates.
The remarks follow a reading on consumer prices earlier in the week that showed inflation was higher than expected. And a pronounced increase in oil prices could also increase costs for businesses and consumers.
“Anytime we get a little bit of irritation thrown into the system the market is going to pull back,” said Robert Brown, chief investment officer at Genworth Financial Asset Management, referring in part to the rise in oil prices. “The stock market is very emotional at this point. It reacts to the tiniest bit of news and turns around and reverse the direction on it.”
The speeches occurred as inflation concerns had infiltrated Wall Street’s sentiment to a greater degree than in recent weeks. But only last week, stocks showed their best performance of the year after Bernanke testified before congressional committees that inflation was likely to moderate over two years. The movement this week was a counterpoint to last week’s run-up.
“The market is latching onto the Fed speeches because there is nothing else to latch onto. It’s groping for meaning, it’s groping for data,” Brown said.
“You’ve got a base of a market having ignored risk. The market has discounted risk to such an extreme. It has been driven by excessive liquidity and fantastic corporate profit growth, which is unsustainable.”
The moves in the bond market follow word that some borrowers with shaky credit were struggling to pay their loans.
Earlier in the week, NovaStar Financial Inc. warned it expects little if any taxable income in the next five years. The subprime lender, whose stock has fallen sharply this week, fell 86 cents, or 9.2 percent, to $8.48.
Delta Financial, another subprime lender, fell 48 cents, or 4.7 percent, to $9.75.
In other corporate news, Microsoft fell 49 cents to $28.90 after a San Diego jury said the software maker would have to pay $1.52 billion to Alcatel-Lucent SA in a patent-infringement case. (MSNBC.com is a Microsoft-NBC Universal joint venture.)
Lowe’s Cos., the nation’s second-largest home improvement chain behind Home Depot Inc., rose $1.30, or 3.9 percent, to $34.93 after the company posted better-than-expected fiscal fourth-quarter results. Home Depot was off 22 cents at $40.96.
Rising oil prices lent a modest boost to energy stocks. Exxon Mobil Corp. rose 14 cents to $75.22, while ConocoPhillips advanced 32 cents to $67.20.
Taco Bell parent Yum Brands Inc. fell 55 cents to $60.51 after news video footage showed rats scurrying about a New York City Taco Bell.
Tekelec, a maker of telecommunications signaling devices, fell $1.39, or 9.3 percent, to $13.51 after the company’s 2007 forecast was met with disappointment on Wall Street.
Overseas, Japan’s Nikkei stock average rose 0.44 percent. Britain’s FTSE 100 closed up 0.32 percent, Germany’s DAX index rose 0.27 percent and France’s CAC-40 was up 0.15 percent.