Stocks finished lower Friday to end their best third quarter in 11 years, while the Dow Jones industrial average pulled back from above record highs. Investors were digesting a report showing that inflation remains above the Federal Reserve's comfort zone.
The Dow fell 39.38 points, or 0.34%, to 11,679.07, after briefly bobbing above its all-time closing high of 11,722.98, reached Jan. 14, 2000. The broader Standard & Poor's 500 index slipped 3.3 points, or 0.25%, to 1,335.85. The tech-heavy Nasdaq composite dropped 11.59 points, or 0.51%, to 2,258.43.
NYSE breadth was negative, with 20 issues declining for every 13 advancing. Nasdaq breadth was 18-12 negative.
For the quarter, the Dow rose 4.7%, its biggest third-quarter advance since 1995. The S&P 500 added 5.2%, while the Nasdaq gained 4%.
A busy docket of economic data was in focus Friday. The core personal consumption expenditure (PCE) deflator, a closely watched gauge of inflation, rose 0.2% in August after a 0.1% bump in July. Year over year, the core PCE deflator increased at 2.5% rate in August, up from a 2.3% pace in July. Personal income rose 0.3% in August, as expected.
The Chicago purchasing managers index unexpectedly jumped to 62.1 in September, from 57.1 reading in August. Separately, the University of Michigan's consumer sentiment index rose to 85.4 for September, up from 82.0 in August.
Meanwhile, St. Louis Fed President William Poole offered some dovish remarks on inflation. "The worst of the inflation news is behind us," Poole said, noting the recent decline in energy prices
Still, inflation could still be a threat, some analysts say. "Despite the downward revision to second-quarter core PCE prices, core inflation hit the top of the Fed's forecast range for 2006 in August," says John Ryding, chief U.S. economist at Bear Stearns. "Core PCE inflation is now 0.5%-point above the Fed's 'comfort zone' and stands at the highest rate in more than 11 years."
In corporate news, Research in Motion (RIMM) was sharply higher after the BlackBerry maker's second-quarter results and third-quarter forecast topped analyst' estimates.
On the downside, Ford (F) was lower as the automaker's financing arm said it will cut 2,000 jobs from its payroll as it restructures North American operations.
Shares of Wal-Mart (WMT) fell reports the retail giant may pay $200 million to buy 27 stores from Taiwan-based supermarket outfit Trust-Mart.
Electronics maker Sony (SNE) was lower as Dell (DELL) raised the number of recalled Sony batteries from 4.1 million units to about 4.2 million.
Retailer J. Crew (JCG) was lower after the company announced the resignations of three board members.
In the energy markets, November West Texas Intermediate crude oil futures rose 15 cents to $62.91 a barrel.
European markets finished mixed. In London, the Financial Times-Stock Exchange 100 index fell 10.5 points, or 0.18%, to 5,960.8. Germany's DAX index rose 15.17 points, or 0.25%, to 6,004.33. In Paris, the CAC 40 index was flat at 5,250.01.
Asian markets ended mostly higher. Japan's Nikkei 225 index gained 102.73 points, or 0.64%, to 16,127.58. In Hong Kong, the Hang Seng index advanced 12.48 points, or 0.07%, to 17,543.05. Korea's Kospi index crept lower 0.02 points, or less than 0.01%, to 1,371.41.
Treasury yields rebounded following the inflation data. The 10-year note fell in price to 101-28/32 for a yield of 4.63%, while the 30-year bond slipped to 95-27/32 for a yield of 4.76%.