Indexes Drop on Stock Profit-Taking
Wall Street’s efforts to start a new bull market stalled Tuesday as investors sold stocks to preserve profits from their latest rally.
Prices fell despite a better-than-expected report on leading economic indicators from the Conference Board. Analysts said the good news wasn’t enough to offset doubts that the market’s advance would last. They also said some selling was inevitable after such a strong performance.
“There’s still little evidence of an economic or business recovery, so this rally has so far been mostly based on expectation. And there’s only so much you can invest on expectation before you start to worry you’ll lose your profits,” said Barry Hyman, chief investment strategist at Ehrenkrantz King Nussbaum.
The Dow Jones industrial average closed down 75.08 points, or 0.8%, at 9,901.38. For a second day, the Dow remained 20% above the three-year low it set Sept. 21, a gain that fits the technical definition of a bull market.
Broader stock indicators also fell. The Standard & Poor’s 500 index was down 8.40 points, or 0.7%, at 1,142.66, while the Nasdaq composite index lost 53.91 points, or 2.8%, to 1,880.51. The S&P; 500 has risen 18% since Sept. 21 and the Nasdaq 32%.
Investors have been buying gradually since the precipitous sell-off that followed the Sept. 11 terrorist attacks.
Specifically, Wall Street is feeling more optimistic about a business turnaround, and the U.S. military victories in Afghanistan have helped restore investors’ confidence.
Though the major indexes have returned to their pre-attack levels, most analysts caution against too much exuberance. They note that much of the recent gain is a rebound from a catastrophic loss, rather than buying on healthy earnings.
“The bull looks a little winded,” said Bryan Piskorowski, market commentator for Prudential Securities.
Worries about light volume in the days ahead also weighed on investors Tuesday. The market will be closed Thursday for Thanksgiving and will close early Friday. Investors often pare big positions before a holiday because light trading activity makes buying or selling large amounts of stock more difficult without creating wild price fluctuations.
Still, there are some encouraging signs. The index of leading economic indicators rose 0.3% in October, suggesting the economy might be stabilizing.
That might make the Federal Reserve less inclined to cut interest rates for the 11th time this year at its next meeting--and that possibility might have contributed to some of the selling--but analysts still were pleased.
Declining issues led advancers 8 to 7 on the New York Stock Exchange. Volume was moderate.
Among Wednesday’s market highlights:
* Yields on Treasury securities rose on expectations the Fed won’t cut rates next month. The rise in leading economic indicators, as well as the decline in weekly initial jobless claims and the surge in October retail sales, reported last week, suggest the economic slump may have bottomed out. The yield on the benchmark 10-year Treasury note climbed to 4.87% from 4.80% on Monday.
* Oil stocks rose after Norway’s and Mexico’s oil ministers said they supported cuts in crude oil production to help boost sagging oil prices. Russia’s reluctance to trim production has sent oil prices to two-year lows in the last week.
Exxon Mobil gained 95 cents to $37.96. The Philadelphia oil index rose 3.5%. Oilfield services giant Schlumberger rose $2.93 to $47.86.
* The Philadelphia semiconductor index fell for the fifth day, losing 5.8%. Intel, the biggest semiconductor company, declined $1.04 to $29.95. Its shares have surged 55% in the last two months. Micron Technology lost $1.26 to $26.06, LSI Logic shed $1.05 to $16.18 and Applied Materials lost $2.19 to $36.65.
* Retailers also suffered, including Target, which fell $1.29 to $36.50 after meeting analysts’ estimates but reporting a 14% drop in third-quarter earnings.
