US Stocks Retreat Ahead Of Holiday Weekend

Stocks in the United States fell sharply Friday as the market closed out its worst month in more than a year.

The Dow Jones industrials fell about 80 points on very light volume as many traders started a long holiday weekend. Their absence was expected to skew price moves somewhat during the course of the day.

Investors were also taking money out of the market to play it safe ahead of the weekend, especially since overseas markets will be trading today when U.S. exchanges are closed for Memorial Day. There’s “a little bit of profit taking from Thursday because who knows what can happen over the next three days,” said Brian Peardon, a wealth adviser at Harrison Financial Group in Citrus Heights, Calif. He referred to Thursday’s rally that sent the Dow up 285 points.

May was difficult for the stock market as persistent and intensifying worries about Europe’s debt problems sent the Dow down seven percent. The average was heading toward its worst monthly performance since February 2009, the month before stocks began their recovery from 12-year lows. The Dow also looked to have its biggest May drop since 1962.

A mixed report on personal spending and income Friday discouraged investors from extending Thursday’s rally.

Despite Friday’s drop, there was more stability in the market after a vote of confidence that China gave Thursday about Europe’s debt. The Chinese government denied a report that it was reconsidering its investments in European countries’ debt. That came as welcome news to traders who have sold stocks heavily this month on fears that Europe’s economic growth would be stunted as countries cut their budgets and pay down their massive debts over the next few years. The worry in the stock market is that a slowdown in Europe would curb the recovery in the U.S.

Throughout May, stocks have been tracking the euro, the currency shared by 16 European nations and that has become a gauge of confidence for Europe’s economy. The euro hit a four-year low and was down as much as nine percent during the month. The euro fell modestly again Friday, dropping to $1.2353.

In late morning trading, the Dow Jones industrial average fell 81.32, or 0.8 percent, to 10,177.52. The Standard & Poor’s 500 index fell 10.17, or 1 percent, to 1,092.89, while the Nasdaq composite index dropped 22.42, or 1 percent, to 2,255.26.

About three stocks fell for every two that rose on the New York Stock Exchange, where volume came to 372.2 million shares traded.

If traders can set aside their worries about Europe, they might start paying more attention to the domestic economy than they did during May. The first week of June will bring a series of big economic reports, including the Labor Department’s May employment report and readings on manufacturing, consumer spending and housing.

If there are any signs that the U.S. economy was being affected by news of Europe’s problems — for example, if consumers seemed to be spending less — investors are likely to start selling again. And if the jobs report is disappointing, the market is also likely to suffer.

Moreover, the market will probably slide on any news signs that European countries including Greece, Portugal and Spain are having debt problems.

A report Friday showed that the U.S. recovery might be slowing a bit. The Commerce Department said consumer spending was flat in April, compared with the previous month. Economists polled by Thomson Reuters had forecast spending would rise 0.3 percent. It was the first time in seven months that spending had not risen in a month, indicating that consumers are still somewhat tentative about the health of the economy.

Personal income rose 0.4 percent, slightly worse than the 0.5 percent growth forecast by economists.

“This month was damaging to the psychology of investors, so consumption may taper in the near term,” said Jamie Cox, managing director at Harris Financial Group in Richmond, Va.