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Stocks dip after prior day's big gains

Stocks dip after prior day's big gains

Caution returned to Wall Street Tuesday ahead of results of the government's stress tests of banks.
Stocks dipped slightly in early trading following a big advance Monday that sent one key Wall Street indicator, the Standard & Poor's 500 index, into positive territory for the year and the Dow Jones industrials up more than 200 points. Positive news on the housing market fueled the gains.
Investors are anxious for the stress test results, due Thursday, which will provide details on the U.S. banks in need of more capital.
Reports have surfaced indicating that Citigroup Inc., Bank of America Corp. and Wells Fargo & Co., as well as a handful of regional banks, will be among that group.
On Tuesday, The Wall Street Journal said about 10 of the 19 banks undergoing the tests will be required to boost their capital levels as a buffer against potential future losses. The report cited several unidentified people familiar with the matter.
Regulators have said no large institution will be allowed to fail, and have pledged government funds if necessary. Though some investors are worried the report could indicate more pain in the industry than previously thought, many analysts say results of the tests are largely priced into the market already.
Early Tuesday, the Dow was down 5.26, or 0.1 percent, to 8,421.48. The Standard & Poor's 500 index fell 3.98, or 0.4 percent, to 903.26, while the Nasdaq composite index fell 14.39, or 0.8 percent, to 1,749.17.
Analysts said investors are likely taking some profits following the prior day's jump.
"Yesterday provided an opportunity to buy on the momentum and today could provide an opportunity to take some profits," said Gary Townsend, president and chief executive of Chevy Chase, Md.-based private investment group Hill-Townsend Capital Inc.
Over the past two months, investors have become more optimistic about the economy's chances for a turnaround, encouraged by an increasing amount of upbeat data. This has enabled investors to look past evidence that challenges remain, including mixed earnings reports and millions of job losses.
On Monday, investors were heartened by news that pending U.S. home sales rose more than expected for a second straight month of gains, and construction spending rose in March after five months of declines. With Monday's gain, the S&P 500 has soared 34.1 percent since the rally began March 9. The Dow is up 28.7 percent.
Investors are mindful that the stock market typically turns around, on average, about four months ahead of the economy. But analysts warn that the market's advance will continue to be put to the test, and could easily unravel if investors are shaken enough by some piece of disappointing news.
In addition to the looming bank stress test results, investors are jittery ahead of the closely watched April employment report, due Friday.
Later Tuesday, Federal Reserve Chairman Ben Bernanke will testify before Congress to answer questions about the Fed's multitrillion-dollar efforts to get banks lending freely again and stimulate the economy.
In earnings news, Dow component Kraft Foods Inc. said its first-quarter profit rose a better-than-expected 10 percent even as sales dropped. Shares of the maker of Velveeta, Oreo cookies and Maxwell House coffee jumped more than 7 percent, adding $1.74, or $26.
CVS Caremark Corp.'s profit fell slightly on charges and higher costs, outweighing a 12 percent jump in the drugstore operator's revenue from higher pharmacy sales. And Duke Energy Corp. said its first-quarter earnings fell 25 percent as the recession cut demand for electricity among its industrial customers.
Bond prices were little changed. The yield on the benchmark 10-year Treasury note, which moves opposite its price, held steady at 3.16 percent.


Updated : 2021-07-27 03:11 GMT+08:00