Wall Street seesawed Friday, eventually closing narrowly mixed, as investors displayed some nervousness after the United States announced economic sanctions against China and an inflation gauge rose more than anticipated.
The Dow Jones industrial average finished the last trading day of a turbulent first quarter down 0.9 percent — its most feeble performance since the second quarter of 2005.
Stocks had initially climbed Friday after data showed a rise in consumer spending and growth in Chicago-area manufacturing. But they reversed course in late morning trading when the Bush administration detailed economic sanctions against China to protect American paper producers from unfair Chinese government subsidies. The news caused the dollar to weaken, raising concerns in the market about the U.S. currency’s status as an investment vehicle — one of the factors behind the market’s big drop in late February.
Also causing wariness among among investors: The Commerce Department reported earlier Friday that core inflation rose in February at the fastest rate since August. The inflation barometer that excludes energy and food shot up by 0.3 percent in February, leaving core inflation rising by 2.4 percent over the past 12 months.
“It’s stubbornly above the Fed’s comfort zone,” said Scott Merritt, U.S. equity strategist at JPMorgan Asset Management, noting that investors have been hoping that the Federal Reserve will lower interest rates later this year. “They’re afraid that they’re going to take their sweet time making rate cuts.”
The Dow finished Friday’s seesaw session up 5.60 points, or 0.05 percent, after rising by as many as 67 points and losing as many as 106 points during the session. The broader Standard & Poor’s 500-stock index closed down 1.67 points, or 0.12 percent, while the Nasdaq composite index added 3.76 points, or 0.16 percent.
The dollar fell against other major currencies after the China sanctions were announced — notably the yen, which many investors borrow with to buy higher-yielding dollar assets. If the dollar weakens too much, dollar assets will become less attractive, a problem for the stock market.
Crude oil prices pulled back slightly after reaching a six-month high this week, which heightened worries about high fuel costs eating into discretionary spending. Crude slipped 16 cents to $65.87 a barrel on the New York Mercantile Exchange.
A University of Michigan survey showed consumer confidence slipped in March from a month earlier and that caused wariness among investors. But analysts pointed out that a drop in sentiment doesn’t necessarily mean a drop in spending; the Commerce Department reported Friday that personal spending rose in February by the largest amount in 11 months, a good sign that the economy will keep chugging along, especially since recent data has shown stability on the job market.
Also, the Chicago Purchasing Managers index of regional manufacturing activity soared to a reading of 61.7 in March, higher than Wall Street expected and up from 47.9 in February. A reading above 50 indicates expansion, and a reading below 50 shows contraction. The report is a good indicator of Monday’s national manufacturing report from the Institute for Supply Management.
“Inflation is a worry, so the market is reacting in a tepid way to what I considered fairly good economic news,” said Richard Hoyt, market strategist for KDV Wealth Management in Minneapolis.
Friday’s data on the whole was indicative of slow and steady economic growth. Construction spending in January rose 0.3 percent, swinging from a 0.8 percent fall the previous month. The market was expecting another fall of 0.5 percent. Housing construction fell sharply but was offset by strong gains in nonresidential spending and local projects, suggesting that the slow housing market isn’t defeating other areas of the economy.
Meanwhile, the government’s spring planting report showed farmers expect to plant a greater-than-expected 90.5 million acres of corn this spring. The U.S. Department of Agriculture had expected about 86 million acres.
Concern that the economy is weakening too quickly has been a big factor in the market’s volatility this quarter. The major stock indexes started out strong in January, with the Dow extending its record-setting trek that began in 2006. It hit its peak of 12,786.62 on Feb. 20. But stocks then stumbled, and the Dow plummeted 416 points on Feb. 27 as various worries — about the possibility of recession, tumbling stocks in China, the floundering subprime mortgage market, and the dollar weakening against the yen — came to a head.
The Dow hit its lowest close of the quarter on March 5, at 12,050.41, and briefly dipped below the psychological 12,000 mark on March 14. But investors managed to keep the market from spinning out and steered the Dow back near January levels, thanks to reassuring economic data and calming words from the Fed.
“It’s been kind of a rough quarter. There have been some shocks out there. And the retail investor has been taking in stride,” Merritt said. He noted that for a stock dive to be officially considered a correction, it should exceed 10 percent — which the recent decline has not.
Volatility remains higher than it was before the big dive, and investors will be looking to next month’s first-quarter earnings reports to see if the economy is retreating slowly, as expected, or dropping off precipitously.
Red Hat Inc. released its earnings report late Thursday, posting a profit decline of 25 percent and missing Street expectations for revenue. Red Hat fell 21 cents to $22.93.
Another technology company, Dell Inc., gave investors a shudder Friday when the computer maker’s internal audit committee said it found accounting errors and evidence of misconduct after reviewing previous earnings statements. Dell fell 18 cents at $23.21.
But keeping hopes afloat that takeover activity will continue to soar into the second quarter, Los Angeles billionaires Eli Broad and Ron Burkle submitted bids for Tribune Co., which own the Chicago Tribune and Los Angeles Times and other media properties. Tribune rose 58 cents to $32.11.
Overseas, Japan’s Nikkei stock average rose 0.14 percent. Britain’s FTSE 100 rose 0.82 percent, Germany’s DAX index climbed 3.23 percent and France’s CAC-40 gained 2.38 percent.