BC-Wall Street, 13th Ld-Writethru,1188<\n>Wall Street pulls back after big 2-day rally
NEW YORK (AP) — Wall Street sold off Tuesday as investors, while heartened by government plans to aid consumer lending companies, cashed in some of their winnings after a huge two-day rally.
Some selling was widely expected after the market’s major indexes soared more than 11 percent over the course of Friday and Monday. Those back-to-back gains were the market’s first in three weeks, and Wall Street, consumed by worries about the economy, has been unable to hold on to its advances for very long.
Still, investors were encouraged after the Treasury Department and the Federal Reserve plan to provide $800 billion to help unfreeze the market for consumer debt and to make mortgage loans cheaper and more available. The program is aimed at reviving moribund credit markets.
The government, while looking to reduce fear in the credit markets, is eager to see lenders including credit card companies, student loan issuers and car purchase financers resume more normal levels of lending to help stimulate the economy. Since September, when credit markets first froze, financial institutions have been hesitant to hand over money for fear they won’t be repaid. That, in turn, has made it harder for businesses and consumers to borrow.
“We’re getting more clarity about the federal assistance across the board, and I think that’s being well received,” said Arthur Hogan, chief market analyst at Jefferies & Co. “Most of the overhangs in the market are getting answers.”
The government’s latest effort to combat the fear hobbling the marketplace overshadowed a report that the nation’s overall economic output shrank in the July-September quarter faster than initially estimated as consumers slashed spending by the most in 28 years.
The Commerce Department said third-quarter gross domestic product declined at a 0.5 percent annual rate, outpacing the 0.3 percent first estimated a month ago. Still, Wall Street had expected the number would worsen, so the report didn’t catch the market by surprise. It was the worst reading since growth fell at a 1.4 percent pace in the third quarter of 2001, which was during the last recession.
And, ahead of the holiday shopping season, investors got some good news about consumers. The Conference Board said its Consumer Confidence Index unexpectedly rose to 44.9 in November, up from a revised 38.8 in the previous month. Last month’s reading was the lowest since the research group started tracking the index in 1967. Economists expected the index to slip to 37.9.
The business research group said Americans’ views on the economy still remain the gloomiest in decades. Consumer spending, always a concern on the Street, has taken on greater importance because the economy cannot expand unless consumers are spending — and they’ve shown increasing reluctance the past few months, a troubling sign with the holiday season approaching.
By midafternoon, the Dow Jones industrial average fell 96.86, or 1.15 percent, to 8,346.53. The index was up 164 points earlier in the session.
Broader indexes also fell. The Standard & Poor’s 500 index fell 10.01, or 1.18 percent, to 841.40. The Nasdaq composite index, hurt by signs that companies are cutting back on technology spending, fell 35.65, or 2.42 percent, to 1,436.37.
James Cox, managing partner at Harris Financial Group, said one reason for the pullback is because trading volume is low given the holiday-shortened week. Volume came to a very light 841.8 million on the New York Stock Exchange, where advancing issues held a slight edge over decliners.
“We’ve had a big run over the last two days. It wouldn’t take much to have this rally fizzle out,” Cox said. “This is just kind of a pause, if you will.”
Treasury bonds fell during the session after most investors focused on the stock market. The yield on the three-month T-bill, considered one of the safest investments, rose to 0.08 percent from 0.01 percent late Monday. Investors worried about the economy and bad debt have flooded into safest areas of the credit markets, driving down yields, but some of their anxiety eased Tuesday.
The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 3.09 percent from 3.33 percent late Monday.
The dollar was mixed against other major currencies, while gold prices fell.
Light, sweet crude fell $3.40 to $51.10 a barrel on the New York Mercantile Exchange.
In Chicago, President-elect Barack Obama announced he chose Peter Orszag as his director of the Office of Management and Budget. Obama also expanded on his economic plan, and said he plans to act immediately on a stimulus package upon his first day in office.
Phil Orlando, chief equity market strategist at Federated Investors, contends the market is beginning to lay the groundwork for a recovery because investors are starting to believe the breadth of the government’s actions will begin to aid the economy. He pointed to the latest efforts of the Paulson and Federal Reserve Chairman Ben Bernanke.
“The Armageddon scenario in our mind is off the table because there is nothing the Treasury or Bernanke won’t do to try and make things right,” he said. “Investors are starting to recognize that maybe the world is not coming to an end.”
Starbucks Corp. warned in a regulatory filing late Monday that it expects sales will continue to weaken, at least through the end of the fiscal year. The Seattle-based coffee chain said in its annual report that it expects same-store sales, or sales at stores open at least a year, to decline in fiscal 2009; a bleak outlook earlier this month helped set off a wave of selling on economic fears.
Same-store sales are an important retail metric because they measure how established stores are performing, not just new ones. Shares fell 32 cents to $8.13.
Hewlett-Packard Co. on Monday posted fiscal fourth-quarter earnings that topped Wall Street’s forecast as strong laptop sales helped offset falling printer orders and weakness in some server lines. However, shares fell $2.32, or 6.6 percent, to $33.25 after analysts said they remain concerned about how the company will fare during the recession.
The Russell 2000 index of smaller companies fell 7.78, or 1.78 percent, to 429.02.
Overseas, Japan’s Nikkei stock average rose 5.22 percent. Britain’s FTSE 100 rose 0.44 percent, Germany’s DAX index rose 0.13 percent, and France’s CAC-40 rose 1.18 percent.
