Wednesday, December 10, 2008

NEW YORK | Wall Street turned cautious Tuesday after a two-day rally and as downbeat corporate news reminded investors that the economy’s troubles won’t soon ease. Stocks tumbled while demand for the safety of government debt spiked.

The Dow Jones Industrial Average fell 242 points, while broader indexes showed more moderate declines. Wall Street’s uneven pullback illustrated the fragmented nature of the markets. Some investors snapped up hard-hit technology names, while a bleak forecast from FedEx Corp. made others fearful of stocks.

Demand for safe Treasury bills spiked so high that investors were willing to earn no interest on their investments at a Treasury Department auction. Interest rates on four-week Treasury bills slid to zero from 0.04 percent a week earlier in a Treasury Department auction Tuesday.

“Investors truly don’t want to buy into this market, they are willing to lose money safely like in Treasurys,” said Chris Johnson, manager of quantitative analysis at Schaeffer’s Investment Research in Cincinnati.

Investors are also worried that companies’ difficulties could make an economic turnaround difficult. FedEx Corp. cut its forecast for fiscal 2009 earnings and capital spending late Monday as the slumping economy eroded package deliveries.

The stock market’s retreat wasn’t a surprise,given the steep advance of the past two sessions. But the reasons for the selling weren’t simply based on two days of gains, analysts said. Wall Street is still trying to determine how severely companies’ woes will dent profits and how soon President-elect Barack Obama’s plan to introduce a flood of public-works spending could aid the economy.

The Dow fell 242.85, or 2.72 percent, to 8,691.33.

Broader stock indicators also declined. The Standard & Poor’s 500 Index fell 21.03, or 2.31 percent, to 888.67. The Nasdaq Composite Index fell 24.40, or 1.55 percent, to 1,547.34.

The Russell 2000 Index of smaller companies fell 15.67, or 3.26 percent, to 465.71.

Declining stocks outnumbered advancers by more than 2 to 1 on the New York Stock Exchange, where volume came to 1.44 billion shares.

Bond prices rose after the Treasury auction and as stocks fell. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 2.65 percent from 2.74 percent late Monday. The yield on the three-month T-bill, considered one of the safest investments, rose to 0.03 percent, from 0.01 percent late Monday. Still, the low yields indicate a high degree of investor unease.

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