Stocks turn lower as note on banks spooks traders

  • Business
  • Thursday, 22 Oct 2009

NEW YORK (AP): Spooked traders unraveled a stock market rally late Wednesday as worries mounted about banks and a jump in the price of oil.

The Dow Jones industrial average ended down 92 points after having risen 78 points earlier in the day to a new high for the year.

Analysts say a downbeat note from influential banking analyst Richard Bove raised concerns about Wells Fargo and sent investors rushing to dump financial stocks.

Joe Saluzzi, co-head of equity trading at Themis Trading LLC, said the note was a reminder of troubles still in the economy and was enough to scare many traders.

"They all ran for the exits at the same time," he said.

Oil also touched a new high for the year, and Wal-Mart Stores Inc. says it is stepping up its price-cutting, in a sign that consumers are still struggling.

The stock market touched new highs for the year on Monday as investors grew encouraged about the prospects for the economy.

The Dow Jones industrial average fell 92.12, or 0.9 percent, to 9,949.36.

The broader Standard & Poor's 500 index fell 9.66, or 0.9 percent, to 1,081.40, after reaching 1,101.36, its highest level in the past year. The Nasdaq composite index fell 12.74, or 0.6 percent, to 2,150.73.

Two stocks fell for every one that rose on the New York Stock Exchange, where volume came to 1.4 billion shares compared with 1.2 billion Tuesday.

The pullback comes as analysts say some investors have become too relaxed. The Chicago Board Options Exchange's Volatility Index, known as the market's fear index, jumped late in the day and ended with a gain of 6 percent, having earlier touched its lowest level since August 2008. The VIX stands at 22.2 and is down 48 percent this year. Its historical average is 18-20. It hit a record 89.5 a year ago at the height of the financial crisis.

Todd Colvin, vice president at MF Global, said investors had grown too complacent in betting on stocks would continue to go up.

"It was a very one-sided trade. Stocks have been going up," he said. "We're starting to see 'Wait a minute, we're not out of the woods yet."'

Stocks spent much of the day higher after a handful of banks, including Wells Fargo as well as Morgan Stanley and US Bancorp, posted better results for the July-September quarter. All of them also had higher loan losses, however. That is a sign that the broader economy is struggling even as the financial industry recovers.

Last week, Bank of America Corp., JPMorgan Chase & Co. and Citigroup Inc. also reported higher credit losses as consumers and businesses struggle to pay off their bills.

The dollar fell to its lowest level against the euro since August 2008, lifting oil to a 2009 high.

Dan Deming, a trader with Strutland Equities in Chicago, said the S&P 500's move above 1,100 made some investors uneasy about the market's rise. The index is up 59.9 percent from a 12-year low in early March.

Bond prices fell, pushing yields higher. The yield on the benchmark 10-year Treasury note rose to 3.39 percent from 3.34 percent late Tuesday.

The day's drop came as crude oil rose $2.25 to settle at $81.37 per barrel on the New York Mercantile Exchange as the dollar weakened. Commodities are priced in dollars, making them cheaper for overseas buyers when the greenback slides.

If energy prices rise too far it could make it harder for the economy to recover by raising transportation and other costs.

In other trading, the Russell 2000 index of smaller companies fell 8.30, or 1.4 percent, to 605.11.

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