Investors are nervous because consumers are saving more than they're spending.
Stocks ended mixed Friday after the Commerce Department reported that personal spending, incomes and savings all rose in May. What troubled investors was that the savings rate soared to 6.9%, a 15-year high, while spending rose by a more modest 0.3%.
The trend suggests consumers are being extremely careful with their money. That's good for the individual, but not great for the overall economy in the short-term.
Phil Orlando, chief equity market strategist at Federated Investors, said he expects the savings rate to eventually hit 10% before it eases. The savings rate had been 5.6% in April, and annual savings rates were below 1% from 2005 through 2007.
"If people ramp up savings that aggressively, that is going to result in less GDP recovery than ordinarily would be the case," Orlando said.
Gross domestic product dropped at an annual rate of 5.5% in the first quarter, the government reported earlier this week. As the first half of 2009 ends, investors are growing more anxious about whether the economy can bounce back later this year.
That uncertainty, bolstered by a mix of promising and worrisome data, has led to a choppy week in the stock market. After four straight days of losses, the Dow Jones industrial average rebounded by 2.1% on Thursday. But traders appeared eager to take some profits from that jump ahead of the weekend, analysts said.
The Dow Jones industrial average fell 34.01, or 0.4%, to 8,438.39. The Standard & Poor's 500 index fell 1.36, or 0.2%, to 918.90. The Nasdaq composite index rose 8.68, or 0.5%, to 1,838.22.
For the week, the Dow lost 101 points, or 1.2%. The S&P 500 index fell 0.3% and the Nasdaq rose 0.6%. The Dow is down 3.9% for the year, while the S&P 500 and Nasdaq are up.
The University of Michigan reported a rise in consumer sentiment in June, better than the flat reading expected by analysts. But even that report could not trigger a rally.
The technology-dominated Nasdaq did better than the other major indexes, though, thanks in large part to Palm. The smartphone maker posted a narrower loss for its fiscal fourth quarter than analysts expected. The stock rose $2.20, or 15.7%, to $16.22.
Government bond prices edged higher. The yield on the benchmark 10-year Treasury note, which moves opposite its price, slipped to 3.53% from 3.54% late Thursday.
The Russell 2000 index of smaller companies rose 4.04, or 0.8%, to 513.22.
Advancing stocks outnumbered declining stocks 3-to-2 on the New York Stock Exchange, where volume came to 2.3 billion, double the 1.2 billion logged Thursday. Volume was heavy because of the annual reconstitution of the Russell 3000 index, which forced investors to buy and sell hundreds of stocks to match the new makeup of the indexes.
Crude oil fell $1.07 to settle at $69.16 a barrel on the New York Mercantile Exchange.
The dollar was mixed against other major currencies. Gold prices rose.
Overseas, Britain's FTSE 100 fell 0.3%, Germany's DAX index fell 0.5%, and France's CAC-40 fell 1.1%. Japan's Nikkei stock average rose 0.8%.