Stocks ended a week of big losses with more selling Friday as rising oil prices again raised worries that strained consumers will cut back spending and hurt the overall economy. The Dow Jones industrials fell nearly 150 points in the final session before the three-day holiday weekend.
Investors are uneasy about consumers, who at the start of Memorial Day weekend are paying gasoline prices that have gone up nearly 20%, or 65 cents a gallon, in the past year.
Wall Street fears that consumers, who account for more than two-thirds of U.S. economic activity, will pare spending to make room in their budgets for gas that has topped $4 a gallon in some parts of the country.
Light, sweet crude rose $1.38 to settle at $132.19 per barrel on the New York Mercantile Exchange. Oil saw its third weekly gain after surging to a record $135.09 a barrel on Thursday. Some investors are buying on the belief that global demand from countries like China and India will outstrip supply. A weak dollar also makes each barrel more expensive.
"Crude oil is still weighing on the market and particularly because this is a traditional driving holiday," said Chris Orndorff, director of equity strategy at Payden & Rygel in Los Angeles.
Some traders took Friday off before the long weekend; lighter volume can contribute to volatility in stocks.
The Dow fell 145.99, or 1.16%, to 12,479.63, for its worst week since early February.
Broader stock indicators also declined. The Standard & Poor's 500 index fell 18.42, or 1.32%, to 1,375.93, and the Nasdaq composite index fell 19.91, or 0.81%, to 2,444.67.
For the week, the Dow is down 3.91%, the S&P 500 gave up 3.47% and the Nasdaq lost 3.33%.
The economic fallout from higher energy prices commanded Wall Street's focus this week. Stocks managed to post gains Thursday following the Dow's biggest two-day loss since late February. Despite the declines in the major indexes this week, stocks are off their mid-March lows. The Dow is still up 6.3% from its close of 11,740.15 on March 10.
"I think while the eye of the credit storm may have passed, the tidewater is still rising on the consumer and investors can't lose sight of that," said Jack Ablin, chief investment officer at Harris Private Bank in Chicago. He noted that higher gas prices had led some vacationers to reduce how far they plan to travel for the holiday.
"It is taking a toll on the consumer and it remains to be seen how that will impact corporate earnings."
Beyond consumers, investors worried about the harm higher energy prices are having on businesses. The rise in oil hammered sectors such as airlines. Continental Airlines fell nearly 27% for the week, while United Airlines parent UAL Corp. dropped nearly 46%.
Bond prices rose Friday as investors sought the safety of government debt. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 3.85% from 3.92% late Thursday.
The dollar fell, while gold prices rose.
Orndorff said the spike in oil has rekindled concerns about stagflation — when stalling growth accompanies rising prices.
"Given that inflation remains stubbornly high, then the Fed is going to be less accommodative going forward so we may end up a period of sluggish growth in stubbornly higher inflation," he said, referring to possible interest rate cuts from the Federal Reserve. Minutes released this week from the last meeting of the central bank's rate-setting arm doused some investors' hopes that policymakers will again cut rates to aid the economy when they meet at the end of June.
Orndorff predicts investors will need further evidence of how the economy is faring before they resume taking stocks back toward the highs seen last fall.
"I think the market for the most part is going to be in a somewhat narrow trading range until you get the earnings that come out in July. I think that's going to be an important quarter as people see how the effects of the global economy slowing are affecting the companies."
A Financial Times report that brewing company InBev is readying a $46 billion takeover bid for Budweiser maker Anheuser-Busch failed to shake Wall Street from its downcast mood. Often, buyout activity is fodder for a rally in stocks as it as seen as a bullish sign for the economy. But the buying appeared limited to the St. Louis brewer, whose shares hit an all-time high. Anheuser-Busch rose jumped $4.03, or 7.7%, to $56.61.
American Axle and Manufacturing Holdings fell 81 cents, or 4.2%, to $18.44 after the company said that workers approved a new contract including pay cuts and other concessions. The vote ends a strike that lasted nearly three months, hurting General Motors' production of large sport-utility vehicles and pickups. Although the contract's ratification will benefit GM, auto stocks have been under pressure this week because of soaring fuel prices. GM was the steepest decliner among the 30 stocks that comprise the Dow industrials, falling 83 cents, or 4.5%, to $17.60.
Declining issues outnumbered advancers by about 7 to 3 on the New York Stock Exchange, where volume came to 1.11 billion shares compared with 1.21 billion shares traded Thursday.
The Russell 2000 index of smaller companies fell 8.91, or 1.22%, to 724.10.
In overseas trade, Tokyo's Nikkei closed rose 0.24%. In Europe, London's FTSE ended down 1.53%, Frankfurt's DAX fell 1.79% and Paris' CAC 40 shed 1.89%.