- The Washington Times - Friday, March 20, 2009

NEW YORK (AP) - Wall Street pulled back Friday as traders collected some profits and sent financial shares down again.

After starting the day mixed stocks veered lower in the afternoon, threatening what would be the market’s first two-week gain in close to a year.

The relatively quiet pullback followed double-digit gains since last week, which in less vexing times might have been the kind of advances the market could see over the course of an entire year.

Friday’s calm could be tied to a mixture of exhaustion and caution. The Fed jolted the market this week with an announcement of plans to buy hundreds of billions of dollars worth of debt securities in hopes of reviving lending.

Stocks initially jumped on Wednesday when the plans were announced but then fell back on Thursday as investors became concerned that the huge injection of money into the economy could cause inflation.

Other markets showed big moves during the week as well. In just two days, the dollar fell 5 percent versus the euro and 3 percent versus the yen. Oil prices soared 7 percent Thursday above $51 a barrel to the highest level this year.

Many analysts believe stocks were due for a pullback after the Dow Jones industrial average rose more than 14 percent over seven trading days. Considering how much the market has rallied, it appears to be holding up well.

Even with the declines this week, the Dow could still record its first two-week run of gains since the period ended May 2, 2008.

The stock market began to rally off of 12-year lows beginning two weeks ago after several banks reported being profitable in the first two months of the year. Even after Thursday’s retreat, the Dow was still up 13 percent from its lows, and the S&P; 500 index was up nearly 16 percent.

The question on Wall Street is whether there will be enough good news in the coming days to keep stocks rising.

Michael Binger, portfolio manager at Thrivent Investment Management in Minneapolis, said the market is signaling that the economy is hitting bottom. He said it shouldn’t be too difficult for stocks to keep moving higher because expectations have fallen so low.

“I think the stock market is saying that fourth quarter of 2008 and first quarter of 2009 may be the trough in negative news,” he said.

In late afternoon trading, the Dow industrials fell 88.73, or 1.2 percent, to 7,312.07.

Broader stock indicators also lost ground. The Standard & Poor’s 500 index fell 11.30, or 1.4 percent, to 772.74, and the Nasdaq composite index fell 20.85, or 1.4 percent, to 1,462.63.

The Russell 2000 index of smaller companies fell 9.74, or 2.4 percent, to 403.52.

Declining issues outnumbered advancers by about 3 to 1 on the New York Stock Exchange, where volume came to a heavy 1.5 billion shares.

Bill Stone, chief investment strategist at PNC Wealth Management, said a retreat in financials wasn’t surprising because they had jumped 60 percent from their lows in such a short time. “We had gone from way oversold to slightly overbought,” he said.

Stone said investors’ desire to lock in some profits as a rally gets going is typical of a bear market. Bear markets are generally defined as a fall of at least 20 percent from a peak.

Bond prices slipped. The yield on the benchmark 10-year Treasury note, which moves opposite its price, rose to 2.65 percent from 2.60 percent late Thursday. The yield on the three-month T-bill rose to 0.20 percent from 0.18 percent.

The dollar recovered modestly against other major currencies. Gold prices slipped.

Analysts have remained cautious over the past two weeks even as the market pushed higher since other rallies that looked like they could signal a market bottom have crumbled in the past year.

From late November until early January stocks rose 20 percent only to fall to new lows as fears grew about the health of the nation’s biggest banks and prospects for the economy.

Market veterans say some skepticism among investors is healthy. They are also reassured by the step-stool approach the market has shown in recent weeks as big gains are followed by more modest moves. That gives traders time to make more reasoned assesments without simply diving into a market for fear of missing a big rally.

Investors also can expect some money managers will want to be doing some buying with the March 31 end to the first quarter approaching. Even with the recent gains stocks are still down by about half from their highs in October 2007.

While many traders contend a market bounce had been overdue after what felt like months of relentless selling there are others who say the underpinnings of the economy remain too weak to justify a sustained recovery.

The unemployment rate stands at 8.1 percent, its highest level since the wrenching recession of the early 1980s, and businesses and consumers are struggling to pay down debt. Many consumers who aren’t hurting are still cutting back, fanning worries that the economy will only continue to shrink.

“All of these bounces in the last two years have run on emotion and this one has been no different,” said Brian F. Reynolds, chief market strategist at WJB Capital Group.

Reynolds contends the sharp rallies after heavy bouts of selling trick investors into believing a recovery is at hand. “We bounce so hard off the bottom for these rallies that it just sucks people in because they want to believe,” he said.

Some investors have still bought into the latest rally. As of midweek, investors had funneled $12 billion over the prior seven days into mutual funds that focus on U.S. stocks. That compares with $14.3 billion they pulled from these funds a week earlier, according to TrimTabs Investment Research.

Not all investors are willing to hold bets that troubled parts of the economy will soon recover. On Thursday and Friday, the financial stocks that led the latest rally pulled the market lower.

General Electric Co. tumbled Friday after several analysts lowered their earnings forecasts following the conglomerate’s statements a day earlier that its finance arm could just break even this year because of the weak economy.

The company often trades like a bank stock because GE Capital makes a variety of loans for credit cards, real estate and big equipment. GE fell 73 cents, or 7.2 percent, to $9.40.

Citigroup Inc. said it was shifting Edward Kelly, the former head of global banking for Citi Private Bank, to the role of chief financial officer, and naming Gary Crittenden, who has been CFO, as chairman of Citi Holdings. Citi Holdings is the portion of Citigroup that holds the bank’s riskiest assets. Citi fell 6 cents, or 2.3 percent, to $2.54.

Other parts of the economy remain a worry. FedEx Corp. fell $3.12, or 6.9 percent, to $41.98 after this week posted a 75 percent plunge in its quarterly profit because of weak demand. Investors often look to the package delivery company as an indicator of demand in the overall economy.

Overseas, Britain’s FTSE 100 rose 0.7 percent, Germany’s DAX index rose 0.6 percent, and France’s CAC-40 rose 0.5 percent. Japan’s stock market was closed for a holiday.

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