By Corrie Driebusch
U.S. stocks fell Friday after data showed a contracting U.S.
economy and that consumers remain cautious.
The new data confirmed that the U.S. economy hit a slow patch in
the first quarter, and called into question the prevailing
narrative that the slowdown was just a blip.
Investors have closely watched economic growth for indications
on whether the Federal Reserve may delay raising interest rates,
which some investors worry may hurt stock performance.
"The market is in a wait-and-see mode to see, was the weakness
in the first quarter temporary or was it something more permanent,"
said Anwiti Bahuguna, senior portfolio manager at Columbia
Threadneedle Investments, which manages roughly $500 billion.
The Dow Jones Industrial Average declined 156 points, or 0.9%,
to 17971. The S&P 500 lost 15 points, or 0.7%, to 2105, and the
Nasdaq Composite shed 34 points, or 0.7%, 5064.
In May, investors pored over a raft of economic indicators. An
apparent resurgence in home building seemed to suggest the U.S.
economy is indeed improving. Others cast some doubt on an economic
bounceback.
"The signs are encouraging, but it's not enough yet to change
the direction of the market in a significant fashion," Ms. Bahuguna
said.
The U.S. stock market has been fairly placid over the past
month, with stocks inching higher and touching fresh records on
muted trading volumes. In May only about 6.05 billion shares
changing hands a day, making it the slowest month in trading since
November, when about 6.04 billion shares were traded each day.
For the month, the Dow is up 1.6% through Thursday's close. The
S&P 500 is up 1.7%.
On Friday, the Commerce Department said in its second reading of
U.S. economic output for the first quarter gross domestic product
shrank at a 0.7% rate. The initial reading of first-quarter GDP
showed the U.S. economy slowed sharply, growing at just 0.2%.
Economists surveyed by The Wall Street Journal had expected that
to be revised downward to a 1% contraction in Friday's reading.
Also weighing on stocks Friday morning was a decline in the
Chicago Business Barometer, commonly known as the Chicago PMI, a
survey of Chicago area purchasing managers that provides insight on
companies' business plans. The decline, which put the index below
50, indicates that factory activity is contracting.
Separately on Friday, a reading on consumer sentiment showed
U.S. consumer optimism in May was higher than expected but still
down sharply from the end of April reading.
European stocks traded lower Friday amid fresh worries about
Greece and its likelihood to secure a deal with its international
creditors.
International Monetary Fund Managing Director Christine Lagarde
said in a German newspaper interview that a Greek exit from the
euro is a possibility, contradicting comments from European Central
Bank officials. The Greek government, meanwhile, said Thursday that
it aims to have a deal in place to secure fresh financing by
Sunday.
Germany's DAX fell 2.3%, and France's CAC 40 dropped 2.5%.
So far this week, stocks have bounced around as investors
grappled with news out of Greece, a mixed bag of economic data and
a wave of new merger announcements.
On Thursday, U.S. stocks slipped, a day after the Nasdaq
Composite hit a record. The Dow Jones Industrial Average lost 36.87
points, or 0.2%, to 18126.12. The S&P 500 declined 2.69, or
0.1%, to 2120.79. The Nasdaq Composite Index sank 8.62, or 0.2%, to
5097.98
In other markets, gold futures rose a fraction to $1189.00 an
ounce. The yield on the 10-year Treasury note fell to 2.108% from
2.132% on Thursday. Yields fall as prices rise.
Crude-oil prices rose 3.3% to $59.59 a barrel.
In corporate news, GameStop Corp. shares rose 7.8% after the
company reported higher first-quarter profits late Thursday as a
result of new video and digital game downloads.
Shares of chip maker Altera Corp. rose 4.2% after reports that
it is nearing a deal with rival Intel Corp, whose shares rose
1.2%.
Tommy Stubbington and Stephanie Yang contributed to this
article.
Write to Corrie Driebusch at corrie.driebusch@wsj.com