So much for those stock market gains that were fattening up portfolios not so long ago.

Disappointing economic news drove stocks down again Friday, sending the Dow Jones industrial average below 12,000 for the first time since March 18.

Most of the profits U.S. stock investors have seen since the beginning of the year have been wiped out after six straight weeks of falling share prices.

Analysts blamed the latest tumble on China’s announcement that its trade surplus in May was smaller than expected, suggesting that global demand for Chinese goods has slowed. Investors were also disappointed by Britain’s announcement that its manufacturing sector was growing more slowly than expected.


But negative reports on manufacturing, real estate prices and unemployment as well as other economic benchmarks have been piling up for weeks. The market staged a one-day rally Thursday, but traders were still gathered near the exits, ready to bolt.

For average investors worried about their 401(k) retirement accounts and other stock investments, the advice from professional advisors has typically been to stand pat and ride out what many think is a temporary reversal.

But as the Wall Street slide has extended week after week, many are no longer patient to wait for a turnaround.

“Anyone who is selling stocks today has to assume we are going back into a recession,” said Jack Ablin, chief investment officer at Harris Private Bank in Chicago. “That’s what the market is saying right now.”


Earlier this spring, the broad market indexes were up between 8.3% and 10.6% for the year, drawing back some investors who had abandoned stocks after devastating losses in 2008 and early 2009. The first four months of 2011 saw net inflows into stock mutual funds after two years of outflows, according to data from the Investment Company Institute.

Now, though, the tide is again moving out of stock mutual funds into the relative safety of bonds, causing particular pain for those investors who recently decided to get back in.

“People had been cautiously reentering the market,” said Jack Bowers, the head of Weber Asset Management in Lake Success, N.Y. “Some of them are probably second-guessing that decision and thinking, ‘Gosh, maybe I ought to have waited a little longer.’”

The Dow Jones index ended Friday down 172.45 points, or 1.4%, at 11,951.91.


The Standard & Poor’s 500 index closed down 18.02 points, or 1.4%, at 1,270.98, while the Nasdaq index fell 41.14 points, or 1.5%, to 2643.73.

While the Dow is still 3.2% above where it started in January, other indexes that more closely reflect the entire stock market are down further. The Nasdaq index, which is based heavily on technology stocks, ended Friday 0.3% below where it was Jan. 1, while the S&P 500 index is up just 1.1% on the year.

The markets still have not fallen as far as they did during last summer’s correction, which was sparked by fears of a European financial crisis. That slump saw the S&P fall 16% from its high in April, while this year the index is down 7% from the highs reached in late April.

But even optimists are saying that there may be more short-term pain before things turn around.


“We are looking to reengage in the market, but we don’t think that will be happening immediately,” said Alan Gayle, senior investment strategist at RidgeWorth Investments in Virginia.

Bank economists have been steadily lowering their estimates for U.S. economic growth this year.

Most of those experts, though, are still expecting some growth and argue that the economy is in better shape than it was last summer.

For stock analysts, a commonly used measure of evaluating share prices, the price-to-earnings ratio, indicates that U.S. stocks are a good buy right now.


Ablin said that he is resisting the temptation to pile out of stocks and attributes most of the recent downturn to pessimism leftover from the 2008 recession, rather than more fundamental factors. But like average investors, he is cautiously watching how bad it gets.

“We’re taking a wait-and-see attitude,” Ablin said.

nathaniel.popper@latimes.com