Stocks Lose Steam as Investors Pull Back
Investors showed renewed caution Monday, driving major stock indexes lower as the market continued a pattern of one step forward and one step back.
Meanwhile, yields on shorter-term Treasury securities slid as some investors bet the Federal Reserve will announce another interest rate cut when policymakers convene next week.
On Wall Street the Dow industrials fell 75.95 points, or 0.9%, to 8,368.04, as two rallies -- one at the opening and one in late afternoon -- succumbed to profit-taking. The Nasdaq composite lost 15.30 points, or 1.2%, to 1,315.83. The Standard & Poor’s 500 eased 0.8% to 890.23.
The market has been in a pattern of one day up, the next day down for the last six trading sessions, following a mid-month rebound powered by better-than-expected corporate earnings.
Since hitting a five-year low on Oct. 9, the Dow has resurged more than 1,000 points. But analysts say stocks are vulnerable to profit-taking as investors fret about the economy’s health and the potential for war with Iraq.
“Markets are overbought for the short term, and there just aren’t enough drivers to power through at this time,” said A.C. Moore, strategist at Dunvegan Associates in Santa Barbara.
Losers outnumbered winners by 18 to 14 on the New York Stock Exchange on Monday, and by 17 to 15 on Nasdaq.
Some analysts expect stocks to drift lower ahead of key economic reports. On Thursday the government will give an estimate of third-quarter gross domestic product growth. On Friday the government will release data on October employment trends.
Mixed reports on the economy in recent weeks have raised expectations that the Fed could reduce its benchmark short-term interest rate, which is already at a 40-year low of 1.75%. The Fed meets Nov. 6.
“We’re probably going to get a rate cut” in November or December, said Robert Delucia, who helps oversee $47 billion at TimesSquare Capital Management Inc. “The markets have been pressuring the Fed for it,” and policymakers will respond partly to ease concern that this year’s plunge in stocks may crimp companies’ ability to fund themselves, he said.
Some investors rushed back into shorter-term Treasury securities Monday in what appeared to be a bet on a Fed cut. The yield on the two-year T-note fell to 1.89% from 1.98% Friday and now is at a two-week low. Yields had resurged in mid-October as stocks soared, luring money out of bonds and into stocks.
Longer-term yields were steady Monday as the Treasury announced its borrowing needs for the near term. The Treasury said it will borrow a net $76 billion during the final three months of the year, the most for that period in nine years, as slow growth curtails tax collections.
The yield on the 10-year T-note was unchanged at 4.09% Monday. It has rocketed from a 40-year low of 3.57% on Oct. 9.
Among Monday’s highlights:
* IBM gained $2 to $76.56 after announcing a new customer-financing program. But Cisco Systems slid 88 cents to $10.90 after brokerage Morgan Stanley downgraded the shares to “equal-weight” from “overweight,” citing slowing growth.
* Merck jumped $1.32 to $54.23 after the Food and Drug Administration approved the cholesterol treatment Zetia, which the firm is developing with Schering-Plough. Schering rose 78 cents to $21.13.
* Defense stocks were broadly lower, in part on worries that some of the companies face rising worker pension liabilities. Northrop Grumman fell $3.08 to $101.98 and Lockheed Martin slid $1.18 to $55.45.
Market Roundup, C8-9
