Wall Street ended a painful week with another decline today as skittish investors unable to hold on to much optimism about the economy drew little comfort from President George Bush’s stimulus plan.
The day’s trading reflected how fractious Wall Street has been in the new year. Investors pulled back from a big early advance, with the major indexes trading mixed as Mr Bush began to speak.
By the time the President finished announcing a plan for about $145bn (€99.18bn) worth of tax relief, the indexes were well into negative territory.
“It’s disappointed in the size of the economic growth package. Wall Street’s showing its displeasure,” said Kim Caughey, equity research analyst at Fort Pitt Capital Group in Pittsburgh.
“Honestly, I think the institutional investors understand the limits to the government’s ability to enact economic change.”
The Dow Jones industrial average, which was up more than 180 points early in the session, fell 59.91, or 0.49%, to 12,099.30. The Dow plunged 306 points yesterday amid deepening pessimism about the economy.
The broader Standard & Poor’s 500 index fell 8.06, or 0.60%, to 1,325.19, while the technology-focused Nasdaq composite index dropped 6.88, or 0.29%, to 2,340.02.
For the week, the Dow and the Nasdaq lost 4%, while the S&P 500 gave up 5.4%. In the 13 trading sessions of the 2008, the Dow has lost nearly 9% while the S&P has fallen 9.75% and the Nasdaq nearly 12%.
Disappointment with Mr Bush’s plan came as investors were searching for those companies that might be weathering the economic slowdown well.
Some are indeed doing better than expected – like International Business Machines, which told Wall Street late yesterday to raise its 2008 profit estimates for the tech company, and General Electric, which posted a fourth-quarter profit rise today.
But many others are struggling. Washington Mutual reported a steep loss late yesterday for the fourth quarter, as Citigroup and Merrill Lynch did earlier in the week.
With the banking industry trying to fix its shrinking portfolios and preparing for more distress in consumer debt, the economy may only have the government to fall back on – and Wall Street didn’t hear as much as it wanted from Bush.
Steven Goldman, chief market strategist at Weeden & Co, contends Wall Street remains concerned about whether other economic troubles are lurking.
“It’s a culmination of factors that have been in existence for a while – it’s the unknown,” he said.
Though GE and IBM earnings were promising, he said, “it’s that concern that earnings are OK today, but what about 6 months from now?”
Government bond prices slipped. The yield on the benchmark 10-year Treasury note, which moves opposite its price, rose to 3.64% from 3.63% late yesterday.
Yesterday, a dismal reading on the Philadelphia Fed’s manufacturing index and ratings agency downgrades of bond insurers sent the market tumbling.
Today, a Bank of America Corp analyst cut its ratings on three bond insurers – MBIA Inc., Ambac Financial Group and Security Capital Assurance Ltd. – to “neutral” from “buy”.
MBIA fell 67 cents, or 7%, to 8.55 after a sharp drop yesterday.
Ambac rebounded from yesterday’s drop, though, rising 34 cents, or 5.5%, to 6.58. The company said today it will ditch its previous plan to raise $1bn (€684,208) in capital, a decision many investors considered an ill-advised move to maintain its ratings.
Security Capital Assurance fell 17 cents, or 9.3%, to 1.65.
A better-than-expected reading on consumer sentiment came as a pleasant surprise to investors today, but ultimately did not help Wall Street save its early advance. The University of Michigan’s index, which most economists expected show a decline for mid-January, rose instead.
Though not a perfect predictor of consumer spending, the report gave Wall Street some hope that Americans’ buying might not drop off too precipitously amid worries about a recession.
The Index of Leading Economic Indicators, a gauge of future economic activity skidded 0.2% in December, registering its third consecutive monthly decline.
The dollar rose against most major currencies, while gold slipped.
The Russell 2000 index of smaller companies fell 7.41, or 1.09%, to 673.16.
Meanwhile, chip maker Advanced Micro Devices late yesterday said its fourth-quarter net loss widened, but the loss was smaller than Wall Street predicted. AMD surged 73 cents, or 11.5%, to 7.07.
IBM rose 2.30, or 2.3%, to 103.40 on its strong forecast.
Washington Mutual rose 1.09, or 8.8%, to 13.55. Many investors, in anticipation of an even bigger fourth-quarter loss, had driven the savings and loan’s stock sharply lower yesterday.