Stocks fell Friday as the market closed out its worst month in more than a year.
The Dow Jones industrials fell about 50 points on very light volume as many traders started a long holiday weekend. Their absence was expected to skew price moves somewhat during the course of the day.
Investors were also taking money out of the market to play it safe ahead of the weekend, especially since overseas markets will be trading on Monday when U.S. exchanges are closed for Memorial Day.
There's "a little bit of profit taking from yesterday because who knows what can happen over the next three days," said Brian Peardon, a wealth adviser at Harrison Financial Group in Citrus Heights, Calif. He referred to Thursday's rally that sent the Dow up 285 points.
May was difficult for the stock market as persistent and intensifying worries about Europe's debt problems sent the Dow down 7 percent. The average was heading toward its worst monthly performance since February 2009, the month before stocks began their recovery from 12-year lows. The Dow also looked to have its biggest May drop since 1962.
A mixed report on personal spending and income Friday discouraged investors from extending Thursday's rally.
Despite Friday's drop, there was more stability in the market after a vote of confidence that China gave Thursday about Europe's debt. The Chinese government denied a report that it was reconsidering its investments in European countries' debt. That came as welcome news to traders who have sold stocks heavily this month on fears that Europe's economic growth would be stunted as countries cut their budgets and pay down their massive debts over the next few years. The worry in the stock market is that a slowdown in Europe would curb the recovery in the U.S.
Throughout May, stocks have been tracking the euro, the currency shared by 16 European nations and that has become a gauge of confidence for Europe's economy. The euro hit a four-year low and was down as much as 9 percent during the month. The euro fell modestly again Friday, dropping to $1.2353.
In midday trading, the Dow Jones industrial average fell 50.07, or 0.5 percent, to 10,208.99. The Standard & Poor's 500 index fell 5.61, or 0.5 percent, to 1,097.45, while the Nasdaq composite index dropped 15.75, or 0.7 percent, to 2,261.93.
About three stocks fell for every two that rose on the New York Stock Exchange, where volume came to 427.4 million shares traded.
If traders can set aside their worries about Europe, they might start paying more attention to the domestic economy than they did during May. The first week of June will bring a series of big economic reports, including the Labor Department's May employment report and readings on manufacturing, consumer spending and housing.
"Barring any unexpected foreign developments, the market will (begin to again) look at domestic economic reports," said Joe Heider, a principal at Rehmann in Cleveland. "Fundamentals of the U.S. economy indicate we're still in recovery."
If there are any signs that the U.S. economy is being affected by news of Europe's problems — for example, if consumers seemed to be spending less — investors are likely to start selling again. And if the jobs report is disappointing, the market is also likely to suffer.
Moreover, the market will probably slide on any news signs that European countries including Greece, Portugal and Spain are having debt problems.
A report Friday showed that the U.S. recovery might be slowing a bit. The Commerce Department said consumer spending was flat in April, compared with the previous month. Economists polled by Thomson Reuters had forecast spending would rise 0.3 percent. It was the first time in seven months that spending had not risen in a month, indicating that consumers are still somewhat tentative about the health of the economy.
Personal income rose 0.4 percent, slightly worse than the 0.5 percent growth forecast by economists.
"This month was damaging to the psychology of investors, so consumption may taper in the near term," said Jamie Cox, managing director at Harris Financial Group in Richmond, Va.
Cox said consumers are more tentative after last year's market drop and recession, so they are more likely to cut back quickly at any signs of economic weakness. Investors, particularly retail investors, are also more likely to sell stocks at the first sign of a pullback, he said.
"We're not far enough removed from the 2009 drop," Cox said. "People are saying 'not again.'"
A measure of consumer confidence was revised slightly higher. The Reuters/University of Michigan consumer sentiment index rose to 73.6 from a preliminary May reading of 73.3. Still the index is at nearly the same level it was three months ago.
The Chicago Purchasing Managers Index, a measure of manufacturing activity in the Midwest, fell to 59.7 in May from 63.8 last month. Economists had forecast the index would fall to 62.
With investors pulling out of stocks, bond prices rose modestly. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 3.32 percent from 3.36 percent late Thursday.
The Russell 200 index of smaller companies fell 6.59, or 1 percent, to 663.92.
Overseas, Britain's FTSE 100 fell 0.1 percent, Germany's DAX index was down less than 0.1 percent, and France's CAC-40 fell 0.3 percent. Japan's Nikkei stock average rose 1.3 percent.