NEW YORK – Wall Street’s confidence took some heavy blows this week.
Despite a strong rally on Monday, stocks drifted lower for much of the week on a darkening economic outlook. In a now-familiar pattern, early gains were erased in the last hour of trading Friday as the market lost its will to move higher.
Despite the market’s seesaw movements this week, all the major indicators finished the five-day period just barely in the black. The Dow Jones industrial average closed the week up 8.68, or 0.1 percent, at 8,277.32. The Standard & Poor’s 500 index rose 4.12, or 0.47 percent, to 887.00. The Nasdaq composite index rose 11.87, or 0.7 percent, to 1,692.01.
Trading has been choppy over the past two weeks as investors began to doubt that a massive two-month rally this spring could be sustained. More bad indicators came this week when the Fed said unemployment could go as high as 9.6 percent, worse than its previous forecast, and Standard & Poor’s said the British government might lose is AAA credit rating.
Stocks traded most of the day higher on Friday following better-than-expected results from several retailers including Sears Holdings Corp., Gap Inc. and Aeropostale Inc. But losses in financial and industrial shares wound up dragging the market down, marking the third time this week that stocks erased early gains to end lower.
With few economic reports coming out this week, the market was left with little fuel to continue a two and a half-month surge that has lifted stocks up more than 30 percent from 12-year lows in early March.
Next week’s economic calendar is much more heavily loaded, with key reports coming on home sales, orders for manufactured goods and consumer confidence. Whether those data please or disappoint the market could be the key to determining what becomes of the spring rally.
“Everything is overpriced,” said Harry Rady, chief executive and portfolio manager of Rady Asset Management. “A very long, protracted recession is still very much alive.”
Investors were jolted by a warning Thursday from Standard & Poor’s that it could downgrade the British government’s top-shelf debt rating, which would increase its borrowing costs just as it’s spending heavily to bail out troubled British banks. That got some thinking that the United States’ own AAA rating might also be in jeopardy.
Worries about the U.S. government’s credit ratings eased somewhat on Friday, but Treasurys and the dollar both lost ground, with the dollar falling to its weakest level against the euro since January.
Some of the signals this week were encouraging, however. The Federal Reserve said banks reduced borrowing from its emergency loan program over the past week, while investment banks didn’t borrow at all – the first time that’s happened since early September.
Markets will be closed on Monday for the Memorial Day holiday.
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