Stock rally is short-lived
The bears returned Tuesday, and they looked hungry.
A strong morning rally on Wall Street turned into another rout, and some news after the close of trading suggested that today could bring more selling.
The 10% pullback, or “correction,” that blue-chip indexes have avoided for the last four years might be getting closer, some analysts warn.
The Dow Jones industrial average closed down 146.32 points, or 1.1%, to 13,211.99 -- the lowest since May 2. Broader indexes also tanked as fears about mortgage problems resurged.
A plunge in shares of Apple helped drag the Nasdaq composite index down 37.01 points, or 1.4%, to 2,546.27. Apple fell $9.67, or 6.8%, to $131.76 on rumors that the company was cutting production of its iPod or its new iPhone. Apple said it didn’t comment on rumors.
In the market overall, it wasn’t just another sell-off that unnerved investors and traders but how it unfolded: Stocks were trading higher for most of the day, then crumbled.
“Sentiment just isn’t holding up,” said Giri Cherukuri, head trader at Oakbrook Investments in Lisle, Ill.
The Dow, which tumbled 585 points, or 4.2%, last week, rallied 92 points Monday, boosting hopes that the worst was over.
Early Tuesday the Dow was up 140 points after the Conference Board’s monthly report on U.S. consumer confidence showed the July reading at the highest in nearly six years. That helped ease worries that consumers were turning wary about the economy because of the housing sector’s woes.
The confidence data, and a strong earnings report from General Motors, also seemed to trump a rise in oil prices to record highs: Crude oil futures in New York ended at $78.21 a barrel, up from $76.83 on Monday.
What’s more, Asian and European stock markets had posted hefty gains overnight. The Hong Kong market jumped 2%; the German market surged 1.7%.
But Wall Street’s rally ran out of steam in the final two hours, and selling snowballed.
Many analysts said that there was no single catalyst for Tuesday’s slump but that fears of deeper financial-sector losses from mortgage defaults remained a cloud over the market.
Underscoring the worsening situation in the mortgage market, shares of lender American Home Mortgage Investment plummeted when they resumed trading at midday, after the firm warned Monday that creditors were cutting off its funding.
The stock finished at $1.04, down 90% for the day.
After regular trading ended, the Wall Street Journal reported that brokerage Bear Stearns, which was stung by the collapse last month of two of its hedge funds that invested in mortgage-backed bonds, had suspended investor redemptions from a third hedge fund.
Bear Stearns shares sank to $116.95 in after-hours trading. They had fallen $6.03 to $121.22 in regular trading.
At Tuesday’s close the Dow was off 788 points, or 5.6%, from its record high of 14,000.41 reached July 19.
Some analysts have warned that the market could be primed for its biggest setback in years, if investors who are sitting on big paper profits from the 4½-year-old bull market increasingly cash in holdings.
Blue-chip stock indexes haven’t fallen at least 10% in more than four years -- historically a long period within a bull market to go without such a drop. That might mean there’s more pent-up selling to be unleashed, some experts say.
Kevin Caron, market strategist at brokerage Ryan Beck & Co. in Florham Park, N.J., said he believed that small-company stocks, the stars of the bull market since 2002, were much more at risk of further declines than blue-chip issues.
The Russell 2,000 small-stock index, which fell 1% Tuesday, is down 9.3% from its record high reached July 13.
Among Tuesday’s market highlights:
• The Standard & Poor’s 500 fell 18.64 points, or 1.3%, to 1,455.27, its lowest since April 13. Losers topped winners by about 4 to 3 on the Big Board.
• Financial stocks led the afternoon sell-off. Mortgage insurance firm MGIC slid $6.78 to $38.66, Countrywide Financial dropped $1.10 to $28.17 and Goldman Sachs sank $7.40 to $188.34.
• Energy stocks were a drag on the market, falling despite record crude prices. Exxon Mobil lost 88 cents to $85.13; Valero Energy fell $2.06 to $67.01.
• Thousand Oaks-based Amgen slid $2.45 to $53.74 on concerns that new federal rules covering use of anemia drugs for chemotherapy patients might limit Medicare reimbursement payments for Amgen’s drugs.
• Some investors again fled to the relative safety of Treasury bonds, driving the yield on the 10-year T-note to 4.72%, down from 4.80% on Monday and the lowest since mid-May.
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