Big and small diverged again Friday as blue-chip stocks slid into the close of a difficult month and smaller-company shares pushed further into record territory.
The Dow Jones industrial average bounced around again, falling 72.01 to 7,622.42, but only after erasing an early 87-point slide and then turning south again.
Technology and smaller-company shares posted modest gains, however, lifting the Nasdaq market and boosting the Russell 2000 index of secondary stocks to its third consecutive closing high.
For the week, the Dow lost 265.49 points, leaving the battered blue-chip index about 635 points, or 7.7 percent, below its record close of 8,259.31 set Aug. 6, and pushing it closer to the 10 percent decline commonly known as a ‘correction.’ Stocks were pressured throughout Friday’s trading by the bond market, where interest rates rose after another flurry of robust economic reports undermining hopes for steady, noninflationary growth.
But with many players taking the day off or leaving early for the holiday weekend, volume was extremely light again, leaving the market more vulnerable to another day of volatile swings. On Thursday, the Dow swung from a 129-point loss to a 25-point gain, but faded over the final hour, losing about 93 points.
Although most analysts were hesitant to read much into the events of such a lightly traded day, most were pleased that smaller-company shares were continuing to attract attention.
“For a while, it was just the top 50 or 100 names in the Standard & Poor’s 500 that were trouncing everything else,” said Rick Jandrain, chief investment officer for equity securities at Banc One Investment Advisors in Columbus, Ohio. “Now, the rest of the market is catching up, and that’s healthy.”
The Commerce Department reported Friday morning that consumer spending shot up 0.8 percent in July, the biggest jump in six months, while new home sales rose 0.9 percent, the third straight monthly advance.
Meanwhile, in one of the earliest readings on August’s business conditions, an association of Midwest factory executives reported vigorous activity in that pivotal region.
The markets soared from mid-April through July amid signs that the economic pace was easing enough to keep inflation in check without a boost in interest rates at the Federal Reserve.
The rally stalled early this month, however, as it became less certain that the Fed would be able remain on the sidelines in the coming months. Higher Fed rates would ease inflationary pressures by slowing consumer borrowing, but that might also hurt company profits.
“The reports were all stronger than expected, raising the specter of tighter monetary policy at the Sept. 30 Fed meeting,” said Sung Won Sohn, chief economist at Norwest Corp. in Minneapolis.
Overseas, Tokyo’s Nikkei stock average fell 1.2 percent, Frankfurt’s DAX index fell 1.7 percent, and London’s FT-SE 100 fell 0.6 percent.
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