Key stock indexes go separate ways in a day of profit taking

Wall Street indexes were mixed Tuesday as investors sold large companies’ stocks but bought those of smaller companies, cashing in gains from Monday’s big rally and poking around for bargains.

It was a somewhat unusual day of trading. Normally, the major stock indexes closely track one another. But Tuesday, the Dow Jones industrials closed with a moderate loss and the Nasdaq composite index had a moderate gain.

Given the market’s quick, sharp rebound from August’s credit market squeeze and stock sell-off, it was to be expected that investors would pause to adjust their portfolios as the fourth quarter got underway.

Wall Street was only slightly fazed by the National Assn. of Realtors’ report Tuesday that its seasonally adjusted index of pending sales for existing homes fell 6.5% in August from July and 21.5% from a year earlier.

The data suggest sales of existing homes will probably keep declining in the coming months -- bad news for the economy but good news for those hoping for another interest rate cut.

After the Federal Reserve lowered rates Sept. 18, the stock market was hoping for a similar move again at the Fed’s Oct. 30 and 31 meeting. That optimism drove the Dow up nearly 192 points Monday to 14,087.55 -- a new high and the first time above the 14,000 level since mid-July, right before stocks plunged on worries related to sub-prime mortgages and overly leveraged debt.

“The economy is soft, you have this big run-up, and the fact is people are just taking some profit,” said Scott Fullman, director of investment strategy for I.A. Englander & Co. “There’s not a ton of news to trade on, and investors are also looking ahead to the unemployment report on Friday.”

The Dow fell as investors sold some of their large-cap stock holdings, which had recently performed well. Also, with commodities prices retreating and the dollar rebounding, big mining and oil companies -- such as Dow component Exxon Mobil -- may see lower profits. Small-cap stocks rose, along with home builders, airlines and brokerages, as investors returned to companies that were unattractive during the summer’s tight credit environment and now appeared cheap.

“Larger-cap companies don’t need to do borrowing. After the rate cut, those who believe there will be another rate cut would want to own smaller-cap stocks,” said Matt Kelmon, portfolio manager of the Kelmoore Strategy Funds.

The Dow fell 40.24 points, or 0.3%, to 14,047.31.

The broader Standard & Poor’s 500 index fell 0.41 of a point, or nearly unchanged, to 1,546.63, and the tech-dominated Nasdaq rose 6.12 points, or 0.2%, to 2,747.11.

The Russell 2,000 index of smaller companies rose 7.23 points, or 0.9%, to 831.97.

Advancing issues outnumbered decliners by about 9 to 7 on the New York Stock Exchange.

Trading is expected to be a bit choppy ahead of the Labor Department’s September job report Friday, which investors are hoping will show a recovery after August’s surprising payrolls decline. In addition to economic data, Wall Street is awaiting third-quarter corporate earnings reports, most of which will arrive in mid-October.

Government bond prices rose as the Dow fell. The yield on the 10-year Treasury note, which moves inversely to its price, fell to 4.52% from 4.55% on Monday.

The dollar rebounded from record lows versus the euro and recovered some ground against the British pound and Canadian dollar. Gold, which had recently hit multi-decade highs, tumbled under pressure from the rising dollar; an ounce of gold fell $17.40 to $729.80.

Crude oil also declined, slipping 19 cents to $80.05 a barrel. Many analysts say oil’s September rally to record levels above $83 was due to speculative buying, because a weak dollar makes dollar-denominated commodities cheaper for foreigners.

Expectations that oil and gold would slide further hurt energy and mining company stocks. Exxon Mobil fell $1.71 to $92.24, ConocoPhillips declined $1.92 to $85.47 and Chevron dropped $1.88 to $92.56.

Barrick Gold retreated $1.98 to $39.25.

Meanwhile, top automakers’ September sales came in mixed.

General Motors was the biggest gainer among the 30 Dow components, rising $1, or 2.8%, to $37.05 after reporting that its U.S. sales rose slightly on stronger demand for its light trucks and crossover vehicles. Ford climbed 34 cents to $8.57 even after saying its U.S. sales fell 21%.

In other corporate news, an investor group reduced its cash offer for SLM, known as Sallie Mae, by 17%. SLM insisted that the buyers honor their original $25-billion deal. SLM rose 19 cents to $50.09.

Acquisitions are still happening, though, despite a tighter-than-normal credit market. Canada-based TD Bank Financial Group agreed to buy Commerce Bancorp in a deal valued at $8.5 billion, and Citigroup said it was buying what it doesn’t already own of Nikko Cordial in a stock deal valued at about $4.6 billion. Citigroup shares rose 14 cents to $47.86.

Overseas, Britain’s FTSE 100 fell 0.1% and Japan’s Nikkei stock average closed up 1.2%.