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Triple-Digit Pullback for Stocks

by Matt Egan

Thanks to a late-day slide in financial stocks, the Dow suffered a triple-digit selloff on Tuesday but managed to preserve the vast majority of Monday’s gigantic gains.

Today’s Markets

The Dow Jones Industrial Average fell 115.49 points, or 1.49%, to 7660.37, the S&P 500 fell 16.58 points, or 2.01%, to 806.34 and the Nasdaq Composite lost 37.37 points, or 2.40%, to 1518.40. The consumer-friendly FOX 50 tumbled 10.95 points, or 1.78%, to 604.26.

“Yesterday was an exciting day up 500 points. I’ll take 100 points down today. That’s okay,” Greg Ghodsi, senior vice president at Raymond James, told FOX Business. “The tendency is to try to run back in very quickly. We’ve been counseling clients to take a deep breath and relax. We’re in a bear market so you need to stick with your plan.”

There weren’t any major economic or earnings reports to move the markets on Tuesday so the focus was squarely on new testimony from regulators in Washington and how the markets responded to Monday’s surge, which was the Dow’s fifth largest point gain ever and 20th strongest rally in percentage terms in history.

While traders largely reacted positively to the fact that Wall Street held onto roughly 75% of Monday’s rally, the Dow is still down 13% year-to-date and off 46% from its record close set in October 2007. Monday’s big gains were sparked by the release of new details about the government’s plan to rid bank of up to $1 trillion of the assets at the center of the credit crisis.

“I think it would be a moral victory in light of the big move we had yesterday,” NYSE trader Ted Weisberg of Seaport Securities told FOX Business.

General Motors (GM: 3.2, -0.17, -5.04%), JPMorgan Chase (JPM: 26.4, -2.739, -9.4%) and Bank of America (BAC: 7.23, -0.6316, -8.03%) were the biggest percentage losers on the Dow on Tuesday. Just a three of the index’s 30 components ended in the green, including Boeing (BA: 36.1, 0.62, 1.75%) and DuPont (DD: 22.76, 0.4, 1.79%).

The Nasdaq Composite tumbled twice as much as the Dow as tech stocks like Amazon.com (AMZN: 72.63, -2.95, -3.9%) and Yahoo! (YHOO: 13.63, -0.49, -3.47%) fell sharply.

“I’m not saying we are at the end of the bear market, although I do believe that the most forceful declines are behind us,” Dan Greenhaus, equity analyst at Miller Tabak, wrote in a note. He added that he believes that the rally off of 12-year lows on the Dow and S&P has “run its course for now.”

Slammed by a late-day slide, the financial sector tumbled 5% on Tuesday amid conflicting story lines. While Deutsche Bank (DB: 42.07, -1.665, -3.81%) and Credit Suisse (CS: 30.8, -3.2, -9.41%) joined a chorus of banks by saying they expect to be profitable in 2009, an analyst at Bank of America reportedly recommended selling the volatile sector due to a lack of confidence in the bailout plan.

Meanwhile, Federal Reserve Chairman Ben Bernanke and Treasury Secretary Tim Geithner fielded questions from angry lawmakers Tuesday about the controversial bailout and compensation practices of American International Group (AIG: 1.39, -0.11, -7.33%).

Geithner also outlined the administration’s request for special powers to monitor and, if necessary, restructure too-big-too-fail non-bank firms like AIG. Tuesday evening many on Wall Street will tune in to watch President Barack Obama’s second prime-time news conference in which he is expected to sell the latest bailout and his $3.6 trillion budget.

In the commodity markets, crude managed to erase a day-long slide to end 18 cents higher at $53.98 per barrel. However, gold sank $29.10 per ounce to $924.70.

Corporate Movers

Goldman Sachs (GS: 110.45, -0.895, -0.8%) plans to shorten its timetable to give back TARP funds due to the uproar over AIG bonuses and its ties to the bailed-out insurer, The New York Times reported. While the newspaper reported Goldman plans to return the cash within the next month, a Goldman exec said Tuesday the bank hasn’t decided when to return the funds.

Credit Suisse (CS: 30.8, -3.2, -9.41%) said it had a strong start to 2009 and it will ask shareholders next month to give it the option to raise $3.3 billion of capital for acquisitions.

Deutsche Bank (DB: 42.07, -1.665, -3.81%) said it expects to turn a profit in 2009 if the financial markets improve and sees no need to raise capital at this time.

Citigroup’s (C: 3.03, -0.12, -3.81%) reverse stock split may reduce calls for eliminating the bailed-out bank from the Dow Jones Industrial Average, Dow Jones Indexes told Reuters. Like FOX Business, Dow Jones, which selects the components of the index, is owned by News Corp. (NWS: 7.68, 0, 0%).

Williams Sonoma (WSM: 11.37, 0.58, 5.38%), the home décor company that owns Pottery Barn, beat the Street with a fourth-quarter adjusted-profit of 31 cents a share.

Carnival (CCL: 22.83, -0.4, -1.72%) exceeded expectations with a first-quarter profit of 33 cents per share and issued an in-line 2009 earnings forecast.

Walt Disney (DIS: 18.29, -0.63, -3.33%) saw its shares sink after the entertainment giant was downgraded to “neutral” from “buy” by Goldman Sachs, which cited valuation and mediocre performance from its studio entertainment division.

Hospira (HSP: 28.28, 1.96, 7.45%) plans to slash 1,400 jobs, or 10%, of its workforce in a move the medical products maker says will save up to $140 million per year.

Data Dump

The Richmond Fed’s manufacturing index rebounded to a -20 reading in March, representing contraction but a big improvement from a -51 reading the month before.

Global Markets

European markets ended mixed as London’s FTSE 100 tumbled 1.05% to 3911.46 but Germany’s DAX rose 0.26% to 4187.36.

In Asia, the Japanese benchmark Nikkei 225 jumped 3.32% to 8488.30 while Hong Kong’s Hang Seng gained 3.44% to 13910.34. China’s Shanghai Composite rose 0.56% to 2338.42.

WSJ:

Drop for Banks Hurts Stocks

By PETER A. MCKAY, GEOFFREY ROGOW and ROB CURRAN

Major market indexes finished near their weakest levels of the day on Tuesday, giving back a portion of Monday’s rally, after a late drop in the financial sector.

The Dow Jones Industrial Average, which jumped nearly 500 points Monday, declined 115.57 points, or 1.5%, to 7660.29. J.P. Morgan Chase was the index’s biggest loser, declining 8.7%. Bank of America fell 7.1% and Citigroup dipped 3.2%.

Some experts argue that the supermarket model that defines those banks is no longer sustainable. Banking analyst Meredith Whitney said at a conference in Washington, D.C., hosted by the Wall Street Journal that she anticipates larger regional banks may offer a better approach after the financial crisis.

Others worry that the controversy over the bonuses given to some employees at American International Group has made it politically untenable for Congress to approve further assistance for struggling financial institutions. Alan Valdes, a floor trader at the New York Stock Exchange for the brokerage Hilliard Lyons, praised the Treasury Department’s toxic-assets plan, but said, “This is it. If this doesn’t work, we know there is no other plan coming.”

At a hearing Tuesday, Federal Reserve Chairman Ben Bernanke and Treasury Secretary Timothy Geithner expressed frustration with the AIG bailout and said that the U.S. government needs broader powers to wind down a broad range of economically important non-bank financial institutions.

Stocks had managed small gains in the afternoon but fell back late as financial shares, which helped lead the bounce on Monday, declined. Even after the drop on Tuesday the major indexes are still well above the bear-market lows reached early this month. The Dow industrials are up 17% from the 12-year closing low of 6547.05 hit on March 9.

The S&P 500-stock index dropped 16.58 points, or 2%, to 806.34. The Nasdaq Composite Index declined 37.26 points, or 2.4%, to 1518.51. Both benchmarks gained about 7% on Monday.

The market often pauses after a big-one day surge as participants take profits and reassess their overall strategy. But for the moment, the consensus on Wall Street is that stocks remain in a bear-market rally that could run a while longer. The Dow has climbed in seven of the last 10 sessions.

Anthony Conroy, head trader at BNY ConvergEx, a New York brokerage, said companies that are likely to benefit most from an economic recovery have been showing increasing leadership during rallies.

Portfolio manager Uri Landesman of ING Investment Management in New York said Monday’s rally was encouraging not only because of the magnitude of the move in major indicators but also because they finished above key technical levels. He pointed to the S&P’s finish comfortably above 800 – a level that had been watched by an increasing number of participants lately.

“I think we’re setting a new floor for the market here,” said Mr. Landesman. “For a while, people were looking at a level around 750. Now, it’s maybe 775 or even 800.”

Mr. Landesman said he considers the market to be in a bear-market rally. But, referring to Monday’s gains, he added: “It was really the first time you could make at least a plausible case that maybe we have something more going on here. I’m going to look for some more evidence before I can say that for sure, though.”

Treasurys fell, with the most pressure on longer maturities. Yields declined last week after the Fed said it would begin buying longer-dated government debt in an effort to drive down mortgage rates and further lubricate credit markets.

Daniel Clifton, a Washington-based policy analyst for Strategas Research Partners LLC, praised the government’s recent steps to, in effect, establish a bid for the assets that have been stuck on banks’ balance sheets for months with no takers.

But he said it remains to be seen how deeply the banks will have to bring down the prices on the securities to meet that bid and whether they will be willing to do so. The mark-down will unquestionably be smaller than it would have been while the credit-securities market was frozen, but it will still entail a certain amount of pain for the firms.

“There is no question that this plan represents a good enough deal that private capital will want to come into the market for these securities,” said Mr. Clifton. “The uncertainty willl be on the other side of the trade.”