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Stocks dip as investors take profits after jump

Stocks dip as investors take profits after jump

Caution returned to Wall Street Tuesday ahead of results of the government's stress tests of banks.
Stocks dipped in midday trading following a rally Monday that sent 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 drove the gains.
"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.
Analysts said the market had little reaction to comments from Federal Reserve Chief Ben Bernanke, who told Congress the economy should start growing again later this year. Bernanke did warn that even after a recovery begins, the economy will still show signs of weakness, but that caveat didn't surprise investors.
"I thought in general, the comments were optimistic, but I'm not sure they told us anything new," said Bill Stone, chief investment strategist at PNC Wealth Management.
A growing amount of upbeat economic data has driven stocks to their best two-month performance in nearly 35 years. However a number of dark clouds still hang over Wall Street, including growing unemployment and mixed news from first-quarter corporate earnings reports.
This week, two major news events could easily upset the market's mood. Results are due out Thursday for the government's "stress tests" on banks, and on Friday the government will report monthly employment data, one of the economic indicators most closely watched by investors.
The Dow fell 15.21, or 0.2 percent, to 8,411.53. The Standard & Poor's 500 index fell 4.94, or 0.5 percent, to 902.30, while the Nasdaq composite index lost 18.77, or 1.1 percent, to 1,744.79.
Declining issues outnumbered advancers by nearly 2 to 1 on the New York Stock Exchange, where volume came to 621.8 million shares.
In other trading, the Russell 2000 index of smaller companies fell 6.85, or 1.4 percent, to 499.97.
Among the economic data Tuesday, a private report on the service sector showed a seventh straight month of contraction, but the pace of decline slowed more than expected _ further evidence to investors that the economy's slide is moderating. But the report did little to stoke buying.
Investors are particularly focused this week on the results of the stress tests, 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 those needing help.
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.
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.
"Over the past several weeks we've come through a period where all data was interpreted through rose-colored glasses," said Lawrence Creatura, portfolio manager at Federated Investors. "Now, it's a question of whether investors continue to have that perspective."
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 6 percent, adding $1.61, or $25.87.
Chesapeake Energy Corp. posted a nearly $6 billion loss for the first quarter because of tumbling natural gas prices. Shares plunged $2.20, or 9.6 percent, to $20.62 amid a broad decline in energy stocks.


Updated : 2021-01-17 12:21 GMT+08:00