Wall Street pulls back after big rally as investors watch earnings credit markets
The retreat was to be expected after the Dow Jones industrial average shot up 413 points on Monday. But investors were also poring over third-quarter earnings reports expected for signs of how serious the economic downturn is; companies' outlooks for the fourth quarter and beyond were under particular scrutiny.
Results released Tuesday were mixed. DuPont Co. said it is lowering its 2008 forecast, Caterpillar Inc. earnings slipped amid higher raw material costs, and Pfizer Inc. topped estimates.
Still, investor anxiety appears to have lessened considerably compared to the previous two weeks when fears about tightening world credit and the health of the economy battered stocks across the globe.
And analysts have warned that the market will see a stretch of back-and-forth sessions as Wall Street recovers from this month's huge drop.
"There is light at the end of the tunnel that this credit crisis is coming to an end," said Peter Cardillo, chief market economist at Avalon Partners. "But, until we see the credit markets turn to full normalcy, the stock market is going to be stop and go."
In midday trading, the Dow fell 180.72, or 1.95 percent, to 9,084.71 after falling more than 100 but also bobbing into positive territory.
Broader indexes were also lower. The Standard & Poor's 500 index fell 22.80, or 2.31 percent, to 962.60. The Nasdaq composite index shed 47.36, or 2.68 percent, to 1,722.67.
On Monday, markets spiked on more signs of a reviving credit market and support from Federal Reserve Chairman Ben Bernanke for further steps to aid the economy, including an additional stimulus package.
Strains in the credit markets eased further in response to a sweeping series of bailout measures by world governments, including a joint U.S. and European plan to buy stakes in private banks to boost to their lending. Demand for Treasury bills, regarded as the safest assets around, lessened further Tuesday in a sign that credit markets are gradually returning to a healthy state.
On Tuesday, the Federal Reserve took more steps to break through a credit clog that has hobbled lending and threatens to plunge the country into a deeper recession. The central bank announced it will start buying commercial paper -- a crucial short-term funding mechanism many companies rely on for day-to-day operations -- from money market mutual funds.
The three-month Treasury bill Monday yielded 1.21 percent, up from 1.12 percent late Monday. The yield fell to 0.20 percent last Wednesday, meaning investors were willing to take the slimmest of returns in exchange for a safe place to keep their money.
And longer-term Treasurys were little changed. The yield on the benchmark 10-year note, which moves opposite its price, fell to 3.76 percent from 3.84 percent late Friday.
Meanwhile, bank-to-bank lending rates continued their retreat, another indication that credit is getting easier to obtain. The London Interbank Offered Rate, or Libor, dropped to the lowest levels in over a month Tuesday. The rate on three-month loans in dollars shed 0.23 percentage points to 3.83 percent, falling for the seventh straight day.
Besides being an indicator of the credit market's health, Libor is used to set rates for consumer loans including mortgages and credit cards.
The dollar was higher against other major currencies, while gold prices fell.
In corporate news, Kirk Kerkorian's investment firm said it sold 7.3 million of its shares in Ford Motor Co. and plans further cuts. He currently owns a 6.1 percent stake of the company, whose shares fell 13 cents, or 5.6 percent, to $2.20.
Chemical manufacturer DuPont said it is still recuperating from a violent hurricane season, which helped drive third-quarter earnings down 30 percent and trimmed the company's 2008 earnings forecast. Shares fell $1.39, or 3.9 percent, to $34.79.
Caterpillar fell $1.63, or 4 percent, to $39.27 after reporting that third-quarter profit slipped 6 percent. The world's largest maker of construction and mining equipment said higher raw material costs offset record global sales. The company, which noted "recessionary conditions" in North America, forecast flat sales for 2009.
Pfizer rose 41 cents, or 2.4 percent, to $17.75 after narrowly beating projections for the third quarter.
Light, sweet crude fell $3.87 to $70.38 barrel on the New York Mercantile Exchange. On Monday, rose moderately after OPEC's president said members were planning a substantial production cut in an effort to halt falling prices.
Declining issues outpaced advancers by a 2 to 1 margin on the New York Stock Exchange, where volume came to 363.4 million shares. The Russell 2000 index of smaller companies fell 13.11, or 2.40 percent, to 533.73.
Financial markets overseas were mostly higher.
Japan's Nikkei stock average closed up 3.34 percent. Britain's FTSE 100 was down 1.24 percent, Germany's DAX index was down 1.05 percent, and France's CAC-40 was up 0.62 percent.-- Wall Street pulled back Tuesday as investors decided to cash in some of the previous session's big gains as they warily comb through another batch of quarterly earnings. The Dow Jones industrial average fell 180 points.
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