Market Snapshot September 25, 2009, 4:40PM EST

Stocks Fall on Mixed Economic News

A drop in durable goods orders Friday outweighed gains in consumer sentiment and new home sales. Next week's big event: the September jobs report

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U.S. stock finished lower Friday after a late rally attempt failed. Some investors were cashing in on the six-month stock market rally while pondering the economic outlook for the rest of the year, with many looking ahead to next Friday's employment report for September.

On Friday, the 30-stock Dow Jones industrial average finished lower by 42.25 points, or 0.44%, at 9,665.19. The broader Standard & Poor's 500-stock index fell 6.40 points, or 0.61%, to 1,044.38. The tech-heavy Nasdaq composite index shed 16.69 points, or 0.79%, to 2,090.92, spurred by weakness in Research in Motion (RIMM).

On the New York Stock Exchange, 16 stocks were lower in price for every 13 that advanced. Breadth on the Nasdaq was 15-10 negative.

Treasuries were higher amid the weakness in equities. The dollar index was lower. Gold futures were lower. Crude oil futures were mixed.

Trading was slow following a batch of mixed economic reports: August durable goods orders

unexpectedly fell 2.4% after surging 5.1% in July; August new home sales rose 0.7% to a still-modest 429,000 annual rate from a revised 426,000 in July; and the September Michigan Consumer Sentiment index rose to 73.5 from the 70.5 preliminary reading and 65.6 in August.

"After a blistering run, the S&P 500 is pausing for air," wrote S&P equity strategist Alec Young in a note Friday. "[W]e think the current pullback is likely to be short lived as S&P Economics believes the fragility of recovery will lead the Fed to be extremely incremental in exiting quantitative easing."

The upshot: Young thinks "this realization will likely fuel renewed risk taking before long."

As for the economy, "so far the recovery has been anything but straightforward, and that's leaving policymakers in a quandary on when and how to exit the many stimulus measures," wrote Action Economics analysts in a website posting Friday.

Wall Street will be watching next week's data releases for clues on the status of the recovery. Second-quarter GDP is expected to be revised slightly lower to a 1.2% rate of decline.

The manufacturing reports are expected to show some further improvement, says Action Economics. The labor market is expected to remain weak, with next Friday's report on September nonfarm payrolls expected to fall another 173,000, while the unemployment rate rises to 9.8%.

In economic news Friday, sales of new single-family homes rose 0.7% in August, to an annual rate of 429,000. However, the July sales pace was revised downward, to 426,000 from 433,000. The consensus in the market was for a larger rise, to 445,000. The data are disappointing, but at least up after the surprise drop in existing sales announced Thursday. Sales fell in the Northeast and Midwest, but rose in the West and were flat in the South. The supply of unsold homes dropped to 262,000 from 270,000, lowering the months supply to 7.3 from 7.6.

U.S. consumer sentiment edged up to 73.5 in the final September reading from the University of Michigan survey vs. the preliminary 70.2 print (65.7 in August). That's also just above the 70.3 reading a year ago. The current economic outlook component rose to 73.4 from the preliminary 71.8 (66.6 in August), and was 75.0 a year ago. The 6-month ahead outlook index climbed to 73.5 from 69.2 preliminarily (65.0 August), and was 67.2 last year.

Orders for durable manufactured goods dropped 2.4% in August, reversing half their July increase of 4.8%. The consensus was for a 0.5% increase. Sharp declines in civilian and military aircraft (down 42.4% and 10.6%, respectively) were responsible for much of the overall decline, but even excluding transportation, orders were only flat. The big drop in civilian aircraft orders just offsets the 98.2% jump in July, and leaves orders near their weak June level. Excluding aircraft, nondefense capital goods orders dropped 0.4%, their second consecutive decline. Shipments, a more stable indicator, fell 1.4% in August (1.2% excluding transportation).

"Overall, the report was weaker than expected, casting some doubt on the strength of the manufacturing recovery," says S&P chief economist David Wyss.