Financial stocks dragged Wall Street lower today as traders worried that last week’s rally was overdone.
Investors who had been focused on which banks would pass the government’s “stress tests” are now turning to the fallout from the evaluation.
Three banks that got good marks on the tests last week said today they plan to issue shares to help repay federal loans they received last autumn. Concerns about more shares hitting the market weighed on financial stocks.
The Dow Jones industrial average fell 156 points.
Technology shares saw some modest buying after Microsoft detailed plans to raise money through a debt offering for the first time. Satellite TV provider Dish Network also posted better-than-expected quarterly profits.
But stocks still fell by more than 2-to-1 on the New York Stock Exchange as analysts said the market was overdue for a break. Last week alone, Wells Fargo jumped 43.7% and JPMorgan Chase rose 19.9%.
Scott Fullman, director of derivatives investment strategy for WJB Capital Group in New York, noted that the Dow has risen about 30% since March – about twice as much as the market might do in a full year of strong gains.
“To take a break here is healthy,” he said.
Financials, which have led the rally, were among the weakest stocks today after US Bancorp, Capital One Financial and BB&T announced plans to sell stock on hopes of raising 1.5 billion dollars to 2.5 billion dollars.
Stocks jumped last week in part on relief over the disclosure of the government’s assessments of the country’s 19 largest banks and other financial institutions.
The Dow fell 155.88, or 1.8%, to 8,418.77. The Standard & Poor’s 500 index fell 19.99, or 2.2%, to 909.24, while the Nasdaq composite index fell 7.76, or 0.5%, to 1,731.24.
Wall Street will continue to keep watch over banks but also will be looking for insights into the health of consumers as traders search for the next catalyst that could continue to pull the market from the 12-year lows of early March.
First-quarter earnings figures are expected this week from Wal-Mart Stores, Macy’s and other retailers and the Commerce Department reports retail sales for April. Macy’s reports first-quarter results on Wednesday, while Wal-Mart will announce its quarterly results on Thursday.
Consumer spending accounts for more than two-thirds of economic activity so investors will be eager for forecasts from key retailers to help determine whether the economy is stabilising as many investors hope.
Microsoft didn’t say how much it hopes to raise in its offering, but in September the company’s board said the company could take on as much as six billion dollars in debt. The software maker, which has more than 25 billion dollars in cash, said it plans to use the money for working capital.
“When Microsoft comes in and does a deal I think it’s a vote of confidence in technology,” said Nick Kalivas, vice president of financial research at MF Global in Chicago. He noted that the money it raises could allow Microsoft to go on a shopping spree to acquire attractive technology companies.
Dish Network jumped 2.61 dollars, or 17%, to 17.92 dollars after the company said its first-quarter profit rose 21% as revenue climbed partly on equipment sales.
Energy stocks fell as light, sweet crude slipped 13 cents to 58.50 dollars per barrel. Chevron Texaco fell 2.38 dollars, or 3.4%, while Occidental Petroleum Corp. fell 2.44 dollars, or 3.7%.
Last week, investors were encouraged that many large banks were found to be financially sound under the government’s “stress tests”, which were aimed at assessing how banks would fare under even worse economic conditions. Ten of the 19 banks were directed to raise more money to shore up their balance sheets.
During the market’s slide in late 2008 and early 2009, traders drove down stocks amid worries that large numbers of companies, particularly banks, would go under.
“A lot of concern of whether they fail or not is starting to dissipate,” said David Hefty, chief executive of Cornerstone Wealth Management.
That has especially been the case in the financial industry. Last week, with the help of financials, the Dow gained 4.4%. The S&P 500 index rose 5.9% and the Nasdaq gained 1.2%.
Even with today’s slide, the S&P 500 is still up 34.4 percent from early March. It’s still 42% below its high in October 2007.
US Bancorp fell 2.04 dollars, or 9.9%, while Capital One fell 4.24 dollars, or 13.5%. BB&T fell 1.99 dollars, or 7.6%.
KeyCorp, which is one of the 10 big banks the government said has to raise more capital to protect against possible loan losses, also said it would offer up to 750 million dollars of its shares. Key fell 69 cents, or 9.9%, to 6.28 dollars.
Some analysts say the market has risen too quickly and that the rally is doomed to collapse because investors are becoming too quick to declare that the US economy’s troubles are over.