Stocks fall as week’s back-and-forth continues
The stock market showed some resilience Wednesday as investors got answers to some of their questions about the government’s bank rescue program.
The major stock indexes closed down 1.1% on Wednesday but recovered from much steeper losses early in the day, continuing the volatile trading that has buffeted the market this week.
Stocks initially fell on growing pessimism about the banking industry and a home sales report that came in weaker than expected. But the market turned up after the Treasury Department said it was beginning to “stress test” the country’s largest banks, assessing their stability under two economic scenarios.
The government also gave the market some reassurance by confirming that it would buy preferred shares from banks that can be converted into common shares. And investors found solace when Federal Reserve Chairman Ben S. Bernanke rejected for a second straight day the notion that banks could be nationalized.
Still, Wall Street remains worried about a possible deepening of the recession, a steady disappearance of dividends and concern about how the government will get toxic assets off banks’ books.
“We’re seeing a lot of nervousness, and that’s breeding volatility,” said Anthony Conroy, managing director and head trader for BNY ConvergEx Group. “We’re definitely in a bottoming process of the market, but it’s not coming as quickly as some people would like.”
Investors appeared disappointed that a late-afternoon speech by President Obama after he met with Treasury Secretary Timothy F. Geithner revealed few additional details about their plan for dealing with the toxic assets that have hobbled many of the nation’s biggest banks.
And the bad news about the housing market increased anxiety about owning stocks. The National Assn. of Realtors said sales of existing homes fell 5.3% to an annual rate of 4.49 million units last month -- the worst showing since July 1997. Wall Street had expected to see an increase in sales.
The Dow Jones industrial average dropped 80.05 points, or 1.1%, to 7,270.89 after surging 236 points Tuesday and falling 251 on Monday. The average tumbled by as many as 194 points in early trading Wednesday and later was up 54 before retreating again.
Broader stock indicators also recovered from earlier lows but finished down. The Standard & Poor’s 500 index fell 8.24 points, or 1.1%, to 764.90, and the Nasdaq composite index fell 16.40, or 1.1%, to 1,425.43.
The Russell 2,000 index of smaller companies gave up 2.7%.
Losing issues narrowly outnumbered gainers on the New York Stock Exchange.
On the whole, investors were neither disappointed nor galvanized by Obama’s Tuesday night speech that touched on the need to create jobs and stabilize the credit system. He told a joint session of Congress that specifics on these and other goals would follow but that billions more might be needed to stabilize the banking system.
Until it is apparent how potential ownership structures of major U.S. banks will look after the government completes stress tests and determines specific plans to help the struggling sector, investors are likely to remain wary about buying financial shares, said Brett D’Arcy, chief investment officer at CBIZ Financial Solutions.
Bank stocks rebounded late in the day. Bank of America, which has gotten a double dose of government funding, rose 11% after Chief Executive Ken Lewis made optimistic remarks about the company’s stability in a TV interview.
Treasury bond yields rose. The benchmark 10-year Treasury note, which moves opposite its price, rose to 2.94% from 2.79% late Tuesday. The yield on the three-month T-bill, considered one of the safest investments, was unchanged at 0.3%.
The dollar rose against other major currencies, and gold prices fell.
Oil prices advanced. Crude futures rose $2.54 to settle at $42.50 a barrel on the New York Mercantile Exchange.
Overseas, key stock indexes climbed 0.9% in Britain, 1.3% in Germany, 0.4% in France and 2.7% in Japan.
