Stocks edged lower on Friday, weighed by a decline in JPMorgan Chase shares after the bank was hit by a one-two punch of bad news and as investors paused just below the S&P 500's record high.
The widely watched index was about 6 points away from its record closing high of 1,565.15, set in October 2007, after failing to break above that level on Thursday.
Friday's dip also meant the Dow was on track to snap its 10-day winning streak during which it racked up a series of all-time highs. Equities have rallied since the start of the year on signs of improvement in the economy and supported by the Federal Reserve's efforts to bolster the recovery.
"It seems like the market is digesting some of the rally that we have seen so far, but when we reflect on the current valuation which is 13 1/2 times earnings on a forward looking basis, it is still a comfortable level compared to around 20 in 2007 and 29-30 levels in 2000," said David Lyon, Investment Specialist, J.P. Morgan Private Bank, based in San Francisco.
JPMorgan Chase & Co was the biggest drag on the S&P 500 and one of the biggest weights on the Dow, falling 2.2 percent to $49.87.
The Federal Reserve told JPMorgan and Goldman Sachs Group Inc that they must fix flaws in how they determine capital payouts to shareholders, though the central bank still approved their plans for share buybacks and dividends.
A Senate report alleged that JPMorgan had ignored risks, misled investors, fought with regulators and tried to work around rules as it dealt with mushrooming losses in a derivatives portfolio. A former top JPMorgan official told lawmakers on Friday she was not to blame for the losses.
In contrast, Goldman shares recovered from early weakness to gain 0.3 percent to $154.58. The stock of rival Bank of America rose 3.9 percent to $12.58. The S&P financial sector index <.SPSY> edged up 0.3 percent.
The Dow Jones industrial average <.DJI> was down 49.40 points, or 0.34 percent, at 14,489.74. The Standard & Poor's 500 Index <.SPX> was down 4.96 points, or 0.32 percent, at 1,558.27. The Nasdaq Composite Index <.IXIC> was down 13.44 points, or 0.41 percent, at 3,245.49.
Shares of CenterPoint Energy and OGE Energy Corp jumped after the companies, along with ArcLight Capital Partners LC, agreed to combine some of their operations to form an energy transportation and services company with nearly $11 billion in assets.
CenterPoint climbed 8 percent to $23.58, and OGE gained 9.4 percent to $67.12.
Market volatility may be increased due to 'quadruple witching' - the quarterly settlement and expiration of four different types of March equity futures and options contracts. Expiration can lead to greater volume and volatility as players adjust or exercise derivatives positions.
Data from Thomson Reuters' Lipper service showed investors in U.S.-based funds poured $11.26 billion of new cash into stock funds in the latest week, the most since late January.
A busy day of economic reports reinforced investors' view that the economic recovery has momentum to it. Manufacturing output bounced back in February, though the pace of manufacturing growth in New York state cooled slightly in March and consumer sentiment fell.
The S&P 500 retail sector <.SPXRT> was down 0.9 percent after the sentiment data.
Consumer prices registered their biggest increase in nearly four years as the cost of gasoline rose. But a smaller gain in the core U.S. Consumer Price Index, which excludes volatile food and energy prices, left the door open for the Federal Reserve to continue its bond-buying program, which has contributed to the stock market's rally.
(Reporting By Angela Moon; Editing by Nick Zieminski)