Posted at 11:50 a.m., Friday, May 25, 2001

Investors pull back as trading slows

Associated Press

NEW YORK — Investors resumed their selling today on Wall Street, focusing on fears about the economy and shoving aside resurgent optimism that business conditions will soon improve.

The Dow Jones industrial average closed down 117.05 at 11,005.37, according to preliminary calculations. The Dow was barely stayed above the 11,000 mark it reclaimed May 16 after trading below the historic level for eight months.

The market's broader indicators also drifted lower. The Nasdaq composite index fell 31.01 to 2,251.01, and the Standard & Poor's 500 index declined 15.28 to 1,277.89.

Analysts said investors were wary today of making big moves ahead of the Memorial Day weekend, evident in lighter trading volume than other days this week.

Stock prices fell on the latest indication of a slumping economy as the Commerce Department reported that output for the first three months was weaker than previously estimated.

Gross domestic product, the country's total output of goods and services, grew at an annual rate of just 1.3 percent in the first quarter, less than the 2 percent rate government estimate last month, which had raised hopes for a rebound.

But today's selling also was expected because the market has been rallying hard since April, based largely on investors' resurgent hopes that lower interest rates will spur the economy and earnings forward again.

With today's 117-point decline, the Dow still has gained 17 percent from its recent March low of 9,389.48. The Nasdaq has jumped nearly 24 percent from its March low of 1,820.57.

"You have to pull back sometime," said Gary Kaltbaum, market technician for Investors' Edge Partners.

Investors' recent hopes were diminished somewhat today by a speech given last night by Federal Reserve chairman Alan Green span, who told the Economic Club of New York the worst of the slowdown that has gripped the nation since 2000 might not be over.

Stock prices will continue to come under pressure as long as weak economic data persists, said Brian Belski, fundamental market strategist for US Bancorp Piper Jaffray.

"When you see the numbers, they suggest the economy has not bottomed. It puts in jeopardy some of the aggressive buying that investors have been doing," Belski said.

Investors could take some encouragement from Greenspan, who reiterated that the Fed is willing to keep reducing interest rates until the economy starts churning again.

Another brighter spot came via the University of Michigan's May report on its consumer-sentiment index, which rose to 92 from 88.4 in April.

Wall Street focused on the negative economic news, and the uptick in consumer sentiment failed to pull up retailing stocks. Wal-Mart traded down $1.69 to close at $51.20, and Home Depot fell $1.17 to $52.28.

Losses were fairly widespread. Among tech shares, Cisco Systems fell 86 cents to $22.05, and Compaq Computer declined 60 cents at $16.95.

As for blue chips, McDonald's slipped 25 cents at $30.51, and Procter & Gamble fell 75 cents to $63.50. Ford Motor fell 91 cents to $24.74 after announcing Monday it would replace 13 million Firestone Wilderness AT tires on its vehicles.

Declining issues narrowly outnumbered advancers 8 to 7 on the New York Stock Exchange, where volume was 816.08 million shares, down from 1.10 billion yesterday.