Wall Street’s joy subsides
Wall Street’s euphoria over the Federal Reserve’s latest move to cure the credit crunch turned to caution Wednesday, leading stocks to retreat a day after their biggest rally in more than five years.
The Fed’s plan announced Tuesday to lend $200 billion in Treasury securities -- and accept mortgage-backed securities as collateral -- was greeted by the stock market as an innovative way to bring relief to the tight credit markets. But investors were hesitant Wednesday to pour more money into stocks without signs that the central bank’s move would help turn around the economy.
“Does it address the main concern, and that’s weaker housing? That has not been resolved just yet,” said Steven Goldman, chief market strategist at Weeden & Co. “If we are in the midst of a recession, and only a couple months into the recession, we might need a couple more months to plod our way through this.”
Volatile energy prices added to the market’s anxiety. Oil futures surged, briefly topping $110 a barrel, to a record close of $109.92 after initially falling on an Energy Department report of higher-than-expected supplies of crude and gasoline supplies.
The Dow Jones industrial average spent most of the day in positive territory but finished down 46.57 points, or 0.4%, at 12,110.24. At one point, the blue-chip index was up more than 140 points. On Tuesday, the Dow surged 416.66 points, its biggest one-day percentage gain in five years.
The Standard & Poor’s 500 index slumped 11.88 points, or 0.9%, to 1,308.77, and the Nasdaq composite index lost 11.89 points, or 0.5%, to 2,243.87.
The Russell 2,000 index of smaller companies fell 6.50 points, or 1%, to 667.31.
Declining issues outnumbered advancers by 5 to 3 on the New York Stock Exchange.
Treasury yields fell along with stocks. The yield on the 10-year Treasury note sank to 3.47% from 3.6% late Tuesday.
The dollar fell against most other major currencies and sank to another record low against the euro. The European currency fetched $1.553 late Wednesday. Gold prices rose.
Financial stocks weakened after leading the market up Tuesday.
Wachovia sank $1.73, or 5.8%, to $28.05. The company’s chief risk officer said the U.S. housing outlook appeared to be worsening and the slowing economy could create higher losses on auto, commercial real estate and business loans.
Washington Mutual, which rocketed 18% on Tuesday, dropped 24 cents, or 2%, to $11.64. Wells Fargo, up 11% on Tuesday, fell $1.28, or 4.2%, to $29.54. A day after climbing 9.1%, Citigroup slipped 28 cents to $21.21.
Fannie Mae, up 11% on Tuesday, tumbled 96 cents, or 4.4%, to $21.04. Freddie Mac fell 12 cents to $20.02 even after its finance chief said it had adequate capital and wouldn’t need to issue more stock.
Bear Stearns slid $1.39, or 2.2%, to $61.58. The Wall Street firm’s chief executive denied rumors of a liquidity squeeze and said the investment bank turned a profit in the first quarter. The stock is down 19% in the last week.
In other market highlights:
* Energy shares in the S&P; 500 lost 1.5% despite oil’s rise. Sunoco fell $4.22, or 7.3%, to $53.27 after a research firm downgraded the stock. ConocoPhillips slid $1.18 to $78.32 after saying higher service and equipment costs prompted it to reduce its output target.
* Retailers slumped on the rally in crude. RadioShack fell 82 cents, or 5.1%, to $15.40. Circuit City Stores slid 19 cents, or 4.8%, to $3.78. Macy’s retreated 78 cents, or 3.3%, to $23.20.
* Health insurers tumbled for a second day in a row after Humana lowered its 2008 outlook, heightening anxiety about higher-than-expected costs weighing on the industry. Humana sank $6.50, or 14%, to $40.88.
* Caterpillar advanced $2.64, or 3.6%, to $75.25 after it raised its sales forecast for 2010 by 20%, exceeding analysts’ expectations.
* Overseas, shares surged in the wake of Wall Street’s big rally Tuesday. Key stock indexes jumped 1.6% in Japan, 1.9% in Hong Kong, 1.5% in Britain, 1.1% in Germany and 1.5% in France.
