Major indexes fell about 2 percent Friday, but most analysts agreed the pullback was a natural response to the market's powerful climb this month. Financial and technology stocks led the retreat, and energy shares fell along with the price of oil.
A dip in personal incomes and a slowdown in personal spending gave investors reason to cash in some of their winnings after the Dow Jones industrial average surged 21 percent over just 13 days. Analysts said the sentiment in the market was still more upbeat than it was a month ago, but the data were a reminder that the economy and the banking system remain troubled.
The market has been ratcheting up and down over the past week. Analysts weren't surprised by its retrenchments, including Friday's, because no one expects such a weak market to move consistently higher. And many analysts believe back-and-forth trading is actually a healthy way for stocks to recover, because it reflects a conservative rather than euphoric attitude among investors.
"I wouldn't read too much into a down Friday," said Sam Stovall, chief investment strategist, U.S. equity research at Standard & Poor's. "It's simply investors taking profits."
Still, it was too early to tell whether the big March advance might go the way of Wall Street's year-end rally, which was more than wiped out in January and February. Although the gains of the past three weeks have been based on early signs of improvement in the banking system and the economy, those advances are vulnerable to critical economic data due next week and first-quarter earnings reports that will begin in a few weeks.
The Dow fell 148.38, or 1.9 percent, to 7,776.18.
The Standard & Poor's 500 index fell 16.92, or 2 percent, to 815.94 and the Nasdaq composite index dropped 41.80, or 2.6 percent, to 1,545.20.
Despite the decline, the indexes are still looking much better than they did a month ago:
The economic reports due next week include the March employment report on Friday. Although the report is likely to show more job losses, analysts believe the market can keep rising if there are other data showing the economy is improving or at the very least stabilizing.
Mike Stanfield, chief executive of VSR Financial Services, an Overland Park, Kan.-based securities broker-dealer, has been telling investors to shift into large-cap growth stocks and energy ahead of an economic rebound. Still, he remains cautious.
"We're not encouraging anyone to go all in," he said. Stanfield is telling investors to return to a more traditional mix of stocks and bonds.
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