The Standard & Poor’s 500 Index declined for a third day on Friday, with the three major US stock indices posting their first negative week since the middle of last month on lingering concern that the US central bank may scale back its stimulus measures to support the economy.
The 7.3 percent plunge in Japanese stocks during the week injected needed sobriety into US markets, but they showed a resilience that cheered investors worried about protecting the year’s gains.
The Dow Jones Industrial Average closed the week down 0.3 percent, at 15,303.10, the broader S&P 500 lost 1.1 percent to 1,649.60 and the NASDAQ Composite was also down 1.1 percent at 3,459.14.
The drop in Tokyo on Thursday — a modest correction in the context of the Nikkei 225’s 21 percent climb in five weeks — sent other Asian and European markets sinking by more than 2 percent.
However, US stocks fended off the selling pressure, with the S&P 500 finishing just 0.28 percent lower on Friday, sending a sigh of relief around the world.
Traders remained cautious on Friday, with stocks virtually unchanged for the day. That left the markets lower for the five-day period after three straight weeks in which the Dow and S&P finished at all-time highs.
“Our markets have been pretty extended and certainly things don’t go up for ever,” Wedbush Securities’ Michael James said. “For the market to take a bit of a pause is certainly warranted.”
The week was uneasy, as shown by the whiplash on Wednesday over differing interpretations of US Federal Reserve Chairman Ben Bernanke’s testimony on the economy to the US Congress.
Shares rose when Bernanke warned that preliminary tightening of the Fed’s easy money policies would be risky, an initial signal that the Fed’s quantitative easing program would remain unchanged.
However, when he was reported shortly later predicting that quantitative easing could be tapered off starting “in the next few meetings” of Fed policymakers, traders reversed course, ignoring Bernanke’s conditional “if we see continued improvement and we have confidence that that is going to be sustained.”
Ultimately, Bernanke’s message was that the Fed still needs to see a few months’ worth of good data before pulling in its bond purchases.
However, the mixed interpretation was enough to discourage strong buying of shares for the rest of the week.
Confirming the caution was the surprise contraction in HSBC’s China manufacturing index for this month reported on Thursday, which served as the catalyst for the sell-off in Asia and Europe.
“Uncertainty regarding the timing of when the Federal Reserve will taper its asset purchases and festering uneasiness toward Chinese economic growth continue to stymie stocks,” Charles Schwab & C analysts said.
US markets nevertheless continued to be supported by an inflow of funds from small investors seeking to share the gains that remain strong. So far this year, the Dow is up 16.7 percent, the S&P 15.5 percent and the NASDAQ 14.3 percent.
However, analysts said that going ahead, investors will need a little more clarity on the economic situation in the US and abroad before markets make their next move.
“We had kind of three down days in a row, so that raises some questions,” Mace Blicksilver of Marblehead Asset Management said.
“A lot of dust has been kicked up through the last few sessions, and notwithstanding yesterday’s comeback effort, it is a little too early to say the dust has settled,” Patrick O’Hare of Briefing.com said on Friday.
US data in the coming week should offer some direction: the US Conference Board’s consumer confidence reading on Tuesday, a revised estimate of first-quarter economic growth on Thursday and personal income and expenditures on Friday.