Stocks heading for first three-day drop of spring rally

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Wall Street’s spring surge is facing its biggest test yet, as major market indexes fall for a third straight session.

The market hasn’t had three down days in a row since the latest rally began on March 10. Every other sell-off along the way has lasted just one or two days before buyers retook control of the market.

The Standard & Poor’s 500 index was down 23.22 points, or 2.6%, to 885.13 at about 11:30 a.m. PDT. It eased 0.1% on Tuesday after falling 2.2% on Monday.

The bulls have stumbled today over the weak April retail sales report, which hints that those economic ‘green shoots’ may be withering.

Selling also may have been fueled by a Wall Street Journal story that said the Obama administration was talking about ways to curb executive pay at financial institutions -- even those that haven’t gotten federal aid.

In Europe, most markets closed down between 2% and 3%.

‘I think it’s all a little too much for the market to digest right now,’ said Ryan Larson, head trader at Voyageur Asset Management in Chicago.

But he noted that trading volume has declined this week from last week, implying that there’s no mad rush for the exits.

With the S&P index up 37% through Friday from the 12-year low reached March 9, many analysts figured a significant bout of profit-taking was overdue.

‘If we give back 10%, that’s probably OK,’ Larson said.

The fear, he said, is that a 10% pullback could quickly turn into something much worse, given how nervous many investors remain about the economy and the market.

If buyers don’t come back after this modest decline, ‘We have a feeling this could slip pretty fast,’ Larson said.

-- Tom Petruno