Wall Street drifts lower a day after massive drop
Investors bruised by Wall Street’s latest rout found little reason Tuesday to pile back into the market.
Stocks extended their losses to a fifth straight day as investors wrestled with the reality that the economy is still far from recovery. The pessimism that has dominated the markets for months stifled some tentative bargain hunting and unraveled several attempts at a rally.
The selling in the erratic session pushed the Standard & Poor’s 500 index to its first close below 700 since Oct. 28, 1996. But losses were modest compared with Monday, when the Dow Jones industrial average tumbled 300 points and both the Dow and the S&P; 500 index registered their lowest finishes in more than a decade.
Tuesday’s fluctuations came as Federal Reserve Chairman Ben S. Bernanke told Congress that an economic recovery depended on the government’s ability to stabilize weak financial markets.
He said the efforts were needed to avoid “a prolonged episode of economic stagnation.”
Investors are still worried that Washington won’t succeed. On Monday, the government injected $30 billion into troubled American International Group, its fourth attempt to stabilize the insurer since September. And last Friday, Citigroup got more help from the government.
“Where is there light at the end of any of these bailout tunnels?” said Linda Duessel, market strategist at Federated Investors in Pittsburgh.
She said the market would continue to slide because investors can’t find a reason to rally, even as stocks are at levels that many on the Street regard as bargains.
In Tuesday’s trading, the Dow fell 37.27 points, or 0.6%, to 6,726.02, its lowest close since April 21, 1997. The index is now down more than 52% from its record of 14,164.53 set in October 2007.
Broader stock indicators also fell. The S&P; 500 index slid 4.49 points, or 0.6%, to 696.33. The Nasdaq composite index fell a modest 1.84, or 0.1%, to 1,321.01. The Russell 2,000 index of smaller companies fell 6.79, or 1.9%, to 361.01.
Bernanke’s remarks came as the central bank said it would begin lending up to $200 billion in an initial move to spur consumer and small-business borrowing for autos, education, credit cards and other expenses. The Fed first announced the plan late last year.
That helped curb selling, traders said. “I think people are just finally happy to see that it’s here and that it’s going to begin,” said equity trader Joe Saluzzi of Themis Trading.
Investors showed little reaction to Treasury Secretary Timothy F. Geithner’s testimony before the House Ways and Means Committee. He said the added spending in the president’s budget was needed because the Bush administration was unwilling to make long-term investments in healthcare, energy and education.
President Obama likened the stock market’s behavior to the daily tracking polls used during campaigns. He said tracking Wall Street’s “fits and starts” too closely could lead to bad long-term policy.
Many investors remain fearful of buying into a market that has dashed investors’ hopes that it had hit bottom. Last week, the Dow and the S&P; 500 index fell through their November lows and, with their continuing pullback, are touching off fears that a new torrent of selling will take place.
Brian Reynolds, chief market strategist at WJB Capital Group in New York, said the market’s slide means it could be ripe for a bounce but that a lasting recovery won’t come until credit market investors begin to put money into riskier debt that is now out of favor.
Government bonds were mixed Tuesday. The yield on the benchmark 10-year Treasury note, which moves opposite its price, rose to 2.94% from 2.91% late Monday.
The dollar was mixed against other major currencies, while gold prices fell. Light, sweet crude rose $1.50 to settle at $41.65 a barrel on the New York Mercantile Exchange.
Overseas, Britain’s FTSE 100 fell 3.1%, Germany’s DAX index fell 0.5% and France’s CAC-40 fell 1%. Japan’s Nikkei stock average slipped 0.7%.
