US stocks recoil, profit-taking sets in

Dow Jones closes down 76 points following Monday's record 936-point jump.

October 14, 2008 23:58
2 minute read.
US stocks recoil, profit-taking sets in

Wall street shouting 224.88. (photo credit: AP)


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Wall Street ended a relatively calm session with a moderate loss on Tuesday as investors, while pleased with the US government's plans to spend $250 billion to buy stock in private banks, decided to cash in some of their profits from the previous day's massive advance. It was the first time in nine sessions that the Dow Jones industrial average didn't close up or down in triple digits, although it did swing in a 700-point range during the session. The Dow closed down 76 points, a day after its record 936-point jump. Profit-taking started creeping into the market after the Dow surged more than 400 points at the opening, a move that was hardly surprising after such a huge gain on Monday. The market is expected to see jittery trading in the weeks and perhaps months ahead because of worries about the weak economy; stocks also tend to ratchet up and down when they're recovering from a plunge like the one Wall Street has suffered in the past two weeks. "We don't know if the bottom is in," said Lincoln Anderson, chief investment officer and chief economist at LPL Financial in Boston, referring to the market's advance Monday after huge losses last week. "We certainly expect heightened volatility for a fair amount of time while we sort out just exactly what's going on." Investors had snapped up stocks Monday in anticipation of the government's plan. US President George W. Bush said Tuesday the government would use a portion of the $700b. financial bailout passed at the start of the month to inject capital into the nation's major banks, which have been slammed by souring mortgage investments. The move follows a similar one announced Monday by European governments to invest about $2 trillion in their own troubled banks. Investors are hoping extraordinary steps by government officials will help resuscitate stagnant credit markets. That led to buying among bank stocks, which helped lift the blue chip indexes but left the technology-heavy Nasdaq composite index lagging. "The tone is cautious," Anderson said. "I don't think anybody is pile driving into the market and doubling up." The revised bailout plan differs from the original in that it aims to recapitalize banks, not just buy the troubled assets off their books at prices that could leave the banks with losses. "This begins to penetrate the core of the problem," said Peter Cardillo, chief market economist at New York-based brokerage house Avalon Partners Inc. But, he said, "there will be a point in time where the euphoria of the bailout plan begins to wear off and the market begins to face reality. And that reality is likely to be a sour earnings season, and that the economy is in recession." The Dow fell Tuesday 76.62, or 0.82 percent, to 9,310.99. Broader stock indicators also declined. The Standard & Poor's 500 index fell 5.34, or 0.53%, to 998.01, and the Nasdaq composite index fell 65.24, or 3.54%, to 1,779.01. Though the major indexes showed losses, advancing issues outnumbered decliners by about 9 to 7 on the New York Stock Exchange, where volume came to 1.88 billion shares.

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