Stocks Drop but Come Back From Worst Levels
Stocks ended mostly lower on Wednesday but well above their worst levels of the day, even though oil prices stayed near $45 a barrel.
Wall Street had rallied on Tuesday after the Federal Reserve sounded an optimistic note about the economy while raising its benchmark short-term interest rate. But downbeat forecasts from technology giants Cisco Systems and National Semiconductor triggered selling as the market opened on Wednesday.
The Dow Jones industrial average, up 130 points on Tuesday, was off as much as 103 points early Wednesday. It then climbed back to close with a loss of 6.35 points, or 0.1%, at 9,938.32.
The tech-dominated Nasdaq composite index dropped as much as 48 points, or 2.7%, early in the session, before rebounding to end down 26.28 points, or 1.5%, at 1,782.42. It had risen 34 points on Tuesday.
After sliding for much of the last six weeks, “it really looks as if the market is groping for a bottom,” said Steve Todd, editor of the Todd Market Forecast newsletter in Mission Viejo.
The Nasdaq index closed above the 2004 low of 1,774.64 set on Monday.
The Standard & Poor’s 500 index, which ended with a loss of 3.25 points, or 0.3%, at 1,075.79 on Wednesday, held above its 2004 closing low of 1,063.97 reached on Friday.
“The market has to demonstrate that it can actually put on a rally, preferably on heavy volume,” Todd said. “We think it is close, but the price of oil and the uncertainty over the election are retarding factors.”
Trading volume rose Wednesday but remained below recent highs. Falling stocks outnumbered winners by 5 to 4 on the New York Stock Exchange and by 5 to 3 on Nasdaq.
The market appeared to get a lift after Saudi Arabia pledged to raise oil production further if necessary. But near-term crude futures in New York rebounded from the day’s lows on new concerns about possible attacks on Iraqi pipelines by insurgents.
For the battered technology sector, Cisco’s warning late Tuesday that its revenue growth would slow fueled a new round of selling. Cisco ended down $2.17, or 11%, at $18.29, its lowest closing price in nearly a year.
“Cautious comments from a tech bellwether are exactly what we didn’t want to see,” Bob Sitko, who helps manage $29 billion at USAA Investment Management Co. in San Antonio, told Bloomberg News.
National Semiconductor also contributed to the gloom by warning that sales in the quarter ending Aug. 29 would drop as much as 5% from the previous quarter. The company said some customers were reducing inventories. The stock tumbled $2.22, or 14%, to $13.48.
The Cisco and National Semiconductor warnings seemed to contradict the upbeat tone of the Federal Reserve on Tuesday. The central bank raised its key short-term rate to 1.5% from 1.25%, the second increase since June 30, and signaled that more rate increases were ahead. The Fed said it believed the economy was “poised to resume a stronger pace” of growth.
“We feel good about the broader economy, on the back of the Fed release,” said David Hegarty, head trader at Commerzbank Securities. “But there are a number of things that are just keeping the pressure on [the market]: energy, terrorism, increasing interest rates and a tight presidential race.”
Among the day’s market highlights:
* Bond yields were modestly lower after the government saw decent demand at its auction of $15 billion of five-year notes. The yield on the notes was 3.52%.
The 10-year Treasury note yield eased to 4.27% from 4.29% on Tuesday.
* Tech shares falling sharply included Broadcom, down $3.67 to $29.21; Teradyne, down $1.17 to $14.24; and Juniper Networks, off 87 cents to $20.69.
* Walt Disney, which late Tuesday reported quarterly earnings that beat expectations, still ended down for the day, off 66 cents at $21.78.
* Drug stocks were among the day’s winners. Eli Lilly gained $1.90 to $62.60; Johnson & Johnson rallied $1.01 to $56.
