Stocks cut losses as bank plans are outlined
NEW YORK -- Stocks ended a choppy session with a loss, but showed its resilience as investors heard answers to some of their big questions about banks.
The major indexes closed down about 1% Wednesday after recovering from steeper losses early in the day, continuing the volatile trading that has buffeted the market this week.
Investors had some of the uncertainty about the troubled banking system lifted when the Treasury Department confirmed it will buy preferred shares from banks that can be converted into common shares. The government also began to "stress test" the banks to determine their solvency if the economy worsened, and Federal Reserve Chairman Ben Bernanke rejected for the second straight day the notion that banks could be nationalized.
The market managed to hold on to some of Tuesday's sharp gains, which saw a 236-point jump in the Dow Jones industrials, and that's a good sign, according to Scott Fullman, director of derivatives investment strategy for WJB Capital Group in New York. "We're not going to go from bear to bull in one day."
Investors remain worried, however, about the recession deepening, dividends disappearing and 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 Barack Obama after he met with Treasury Secretary Timothy Geithner revealed few additional details about their plan for toxic assets.
And more bad news about the housing market left some traders nervous about hanging onto stocks snapped up a day earlier. The National Association of Realtors said sales of existing homes fell 5.3% to an annual rate of 4.49 million last month — the worst showing since July 1997. Wall Street had expected sales would rise.
The Dow Jones industrial average ended down 80.05, or 1.09%, to 7,270.89. The index tumbled by as many as 194 points in early trading, rebounded to trade 54 points above Tuesday's close, and then retreated again.
Broader stock indicators also recovered from earlier lows but finished down. The Standard & Poor's 500 index fell 8.24, or 1.07%, to 764.90, and the Nasdaq composite index fell 16.40, or 1.14%, to 1,425.43.
The Russell 2000 index of smaller companies fell 11.04, or 2.68%, to 401.44.
Declining issues narrowly outnumbered advancers on the New York Stock Exchange, where volume came to 1.22 billion shares.
The S&P 500 index's ability to hold above its November lows despite the market's severe volatility this week shows the potential for a stock recovery, said Ryan Detrick, senior technical strategist at Schaeffer's Investment Research. "We really just need more clarity."
The market was led lower early by banking stocks that dropped amid ongoing uneasiness about the steps the government will take to help struggling financial companies.
Stocks rebounded Tuesday from a Monday sell-off as Federal Reserve Chairman Ben Bernanke told Congress the recession might end this year, and that regulators aren't planning to nationalize banks. Investors were also buying ahead of Obama's speech before a joint session of Congress.
On the whole, investors were neither disappointed nor galvanized by President Barack Obama's speech Tuesday night 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 may be needed to stabilize the banking system.
Until it is apparent how potential ownership structure 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, CBIZ Financial Solutions.
Other sectors are being dragged down unfairly by the gloom surrounding the market, such as health care and technology, D'Arcy said. Eventually, these sectors will begin to rebound as investors recognize the value in them — but it's uncertain when that might occur, he added.
Government bond prices fell as stocks rebounded. The yield on the benchmark 10-year Treasury note, which moves opposite its price, rose to 2.95% from 2.80% late Tuesday. The yield on the three-month T-bill, considered one of the safest investments, rose to 0.30% from 0.29%.
The dollar rose against other major currencies, and gold prices fell.
Light, sweet crude rose $2.24 to $42.20 a barrel on the New York Mercantile Exchange.
Overseas, Britain's FTSE 100 rose 0.85%, Germany's DAX index fell 1.27%, and France's CAC-40 fell 0.41%. Earlier, Japan's Nikkei stock average rose 2.65%.