Stocks rise but investors worry that deeper sell-off is underway
The stock market rose for the first time in six days Wednesday, but the gains were muted and did little to dispel the notion that a deeper sell-off may be underway.
The Dow Jones industrial average climbed 89.46 points, or 0.7%, to 12,805.39, a welcome reversal from its nearly 500-point decline over the last five trading sessions. The Standard & Poor’s 500 index rose 0.7%, and the Nasdaq composite index was up 0.8%.
An unexpected first-quarter profit from Alcoa Inc.late Tuesday and a slight drop in yields on Spanish and Italian government debt lured buyers. Also, investors may have been assuaged by the Federal Reserve’s “beige book,” which said the economy is growing at “a modest to moderate pace” despite rising gas prices.
But investors appear unconvinced that a rally will take hold, and many are instead bracing for a larger drop in share prices. After a six-month surge driven by upbeat economic data, concern is growing once again about the effects of the European debt crisis and the staying power of the U.S. recovery.
Investors worry that government austerity measures in countries such as Spain and Italy will exacerbate the continent’s recession and make it even more difficult for cash-strapped governments to repay their massive debts. That could ripple through to European banks, which hold enormous chunks of government debt.
“The U.S. stock market has finally entered a normal correction,” Wells Fargo & Co. investment advisors wrote in a note to clients Wednesday. “We could see the stock market decline for several weeks before completing the correction. At this time, we would expect a normal correction between 5% and 10%.”
Investors have rushed back to the perceived safety of Treasury bonds in recent days, with the yield on the 10-year T-note falling to 2.38% on March 19 to below 2% on Tuesday. The yield inched up to 2.03% on Wednesday.
