U.S. stocks fell in the year's final trading session on Friday, pushing the Dow Jones industrial average to its first loss since 2002, while both the broad S&P 500 and the Nasdaq Composite Index booked gains for the third straight year.
The Dow declined 0.61 percent in 2005, breaking its streak of back-to-back gains for 2003 and 2004.
But the S&P 500 rose for a third consecutive year, advancing 3 percent - just one-third of its 9 percent gain last year. Its advance for 2005 was its smallest annual gain since 1987.
The tech-laced Nasdaq also climbed for a third straight year, rising 1.37 percent, helped by huge gains in bellwethers including Google Inc., up about 117 percent for the year, and Apple Computer Inc., up about 122 percent for 2005, on a split-adjusted basis.
In Friday's trading, though, Google ended the regular session down 1.3 percent, or US$5.29, at US$414.86, while Apple rose 0.6 percent, or US$0.44, to US$71.89.
In the broad S&P 500 index, the best-performing sector in 2005 was energy, with a 29.1 percent gain, buoyed by crude oil's jump to a record price of US$70.85 a barrel in the aftermath of Hurricane Katrina in August. The worst-performing S&P 500 sectors were communications, with a 9 percent drop, and consumer discretionary, with a 7.3 percent slide.
"This was not a year for macro-sector bets - whoever bet on sectors, or indexes other than energy, got extremely frustrated," said James Paulsen, chief investment strategist at Wells Capital Management in Minneapolis, with US$155 billion in assets under management. "This was the year of individual stocks."
The Dow Jones industrial average fell 67.32 points, or 0.62 percent, to end at 10,717.50. The Standard & Poor's 500 Index slipped 6.13 points, or 0.49 percent, to finish at 1,248.29. The technology-laced Nasdaq Composite Index dropped 12.84 points, or 0.58 percent, to close at 2,205.32.
For the week, stocks finished lower, with the Dow down 1.5 percent, the S&P 500 down 1.6 percent and the Nasdaq down about 2 percent.
A fourth-quarter rally, which had pushed the S&P 500 up 5 percent for the year on Dec. 14, stalled this week after the two-year U.S. Treasury note's yield rose above the 10-year Treasury note's yield for the first time in five years. This development, called an inversion of the yield curve, has in the past predicted the start of economic recessions.
The benchmark 10-year Treasury note's yield was 4.387 percent at the close of Friday's abbreviated trading session - or 1 basis point below the two-year note's yield of 4.400 percent.
Adding to investors' concerns, oil prices rebounded above US$60 a barrel this week, renewing worries about the impact of higher energy costs on consumer spending and corporate profits. On Friday, NYMEX February crude rose US$0.72 to settle at US$61.04 a barrel, after earlier hitting a session high at US$61.25.
This year's high in oil prices drove up shares of energy companies, with Exxon Mobil Corp., a Dow component, finishing 2005 with a gain of about 10 percent for the year. Exxon Mobil closed on Friday at US$56.17, down US$0.07, or 0.12 percent, on the NYSE.
Other top energy performers included Valero Energy Corp., up about 127 percent for the year on a split-adjusted basis. On Friday, Valero ended on the NYSE at US$51.60, unchanged from Thursday's close. "Energy drove most of the year's gains even though we had solid economic and earnings growth," said Michael Metz, chief investment strategist at Oppenheimer & Co. "And demand for these companies may still be high at the start of 2006." Some stocks also were hit in 2005 by an increase in the benchmark fed funds rate for overnight bank loans to 4.25 percent, Metz said.
The fed funds rate, which the Federal Reserve has raised 13 straight times since June 2004, ripples across the U.S. economy in the form of higher prime rates for banks' best customers, as well as higher credit-card rates for consumers. "Shares in the consumer and financial sectors are the most vulnerable," he said.
Wal-Mart Stores Inc., the world's largest retailer and a Dow component, ended the year down about 11 percent. On Friday, Wal-Mart shares closed at US$46.80, down 1.4 percent, or US$0.68.
Volume was lighter than average on Friday, with about 1.11 billion shares changing hands on the NYSE, well below last year's daily average of 1.46 billion. On Nasdaq, about 1.35 billion shares were traded, below last year's daily average of 1.81 billion.