A last-minute slide led by the financial sector derailed a triple-digit rally on Wednesday as the markets continue to run into resistance following Monday's surge.
Today's Markets
The Dow Jones Industrial Average lost 52.81 points, or 0.62%, to 8422.04, the S&P 500 fell 4.66 points, or 0.51%, to 903.47 and the Nasdaq Composite sank 6.70 points, or 0.39%, to 1727.84. The consumer-friendly FOX 50 dropped 3.73 points, or 0.56%, to 665.66.
“I think this rally has gotten ahead of itself and we were due for a period of backfilling and moving back toward the economic trends,” said Nick Kalivas, vice president of financial research at MF Global.
The bulls had bid up stocks earlier in the day, cheering a number of positive stories: Bank of America's (BAC) latest successful fundraising efforts, Target's (TGT) better-than-expected quarterly results and a rally in the energy sector as crude oil climbed above $62 per barrel.
Wednesday's late selloff appeared to be unprovoked but was led by the financial sector, which slumped almost 3% even though Treasury Secretary Timothy Geithner said the financial system is starting to heal and the government's toxic asset programs are set to start in weeks.
“This pullback in the market off the morning’s highs is again being led by the three most important groups in my opinion when analyzing the state of the U.S. economy: retail, housing and financials,” Peter Boockvar, equity strategist at Miller Tabak, wrote in a note. Boockvar noted that those sectors also led last week’s declines.
The markets are still sharply higher on the week, though the Dow has now erased roughly 85 points of Monday's 235-point jump. Last week the Dow tumbled 300 points, a rare break from a two-month surge that has been sparked by signs of hope for the economy.
The Dow, which is stuck in its first two-day losing streak since late April, was led lower by Hewlett-Packard (HPQ) and JPMorgan Chase (JPM).On the upside, General Motors (GM) and McDonald's (MCD) ended sharply higher.
The Nasdaq Composite ended with modest losses, its first in three days, as tech giants like Cisco (CSCO) tumbled on HP's lukewarm guidance for the current quarter.
Wall Street may have been spooked by the release of the Federal Reserve's April 29 minutes, which showed the central bank has slashed its economic outlook as it now sees 2009 GDP declining as much as 2% and unemployment reaching up to 9.6%. At the same time, the Fed said it sees "tentative evidence" that the pace of economic decline has slowed and is open to boosting its plan to buy mortgage and Treasury securities.
Banks Reverse Course
Early enthusiasm for new fundraising efforts by BofA and Regions Financial (RF) proved unsustainable as financial stocks were the biggest losers on Wednesday. BofA has now raised $13.47 billion through common-stock sales and is more than halfway to its goal of plugging the gap in its balance sheet.
While Wall Street has cheered banks' ability to tap the private markets for cash instead of the government, an avalanche of common-stock offerings has flooded the markets with excess supply and diluted current shareholders.
“Despite the fact the market seems to want to rally, the secondary issue is so large I think it’s providing some problems. The market is having trouble digesting the supply,” said Kalivas.
Earnings, Energy Overshadowed
The slide in the financial sector eclipsed another positive day of retail news. Following in the footsteps of Lowe's (LOW) and Home Depot (HD) earlier this week, Target (TGT) said its quarterly profit declined 13% to 69 cents per share, widely exceeding expectations. Similarly, BJ's Wholesale Club (BJ) beat the Street and boosted its full-year earnings guidance.
Energy stocks like National Oil Well Varco (NOV) outperformed the broader markets as crude oil settled at a fresh six-week high amid a bullish inventory report and an ugly session for the greenback. New government data showed crude stockpiles tumbled by 2.1 million barrels last week, three times as much as analysts had forecasted. Crude settled at $62.04 per barrel, up $1.94, or 3.23%.
Copper prices were also on the rise, continuing their 50% surge from January. The rally helped boost materials stocks like U.S. Steel (X) and Newmont Mining (NEM).
Corporate Movers
Chrysler LLC received approval from a bankruptcy judge to increase its DIP financing from the U.S. to $4.96 billion, up from $4.1 billion. The auto maker said C. Robert Kidder will succeed Robert Nardelli as chairman after it completes its alliance with Fiat.
Deere (DE) posted a better-than-expected 38% tumble in quarterly earnings as the world’s largest maker of farm equipment saw its revenue slide 17%. The company also cut its full-year profit guidance below expectations.
GMAC LLC is poised to receive as much as $7.5 billion in capital injections from the U.S. as early as Wednesday, the Detroit News reported. The new capital, which comes on top of $5 billion injected in December, could give the U.S. a majority stake in the auto finance company, the paper reported.
General Motors (GM) said it expects three bids for its European operations, which includes the core German Opel brand, by Wednesday’s deadline. Possible suitors for the unit include Italian auto maker Fiat, Austrian-Canadian auto parts supplier Magna International (MGA) and RHJ International, a European buyout firm, the Journal reported.
Toll Brothers (TOL) disclosed a 51% dive in quarterly revenue, exceeding estimates. The luxury home builder said it believes that “more buyers are beginning to enter the housing market” thanks to low interest rates, improving consumer confidence and affordability.
Hertz (HTZ) saw its shares tumble 17% a day after the car-rental company unveiled plans to sell 40 million common shares in an effort to slash its debt.
Invesco (IVZ) priced a $400 million stock offering at $14 per share, matching the mutual-fund manager’s closing price on Tuesday.
SolarWinds (SWI) became the sixth-straight initial public offering to see its stock jump in its debut. The software company raised $151.5 million, making it the first tech IPO in the U.S. in nine months.
Global Markets
European stocks ended mixed as London's FTSE 100 sank 0.31% to 4468.41, France's CAC 40 rose 0.87% to 3303.37 and Germany's DAX gained 1.60% to 5038.94.
In Asia, Japan's Nikkei 225 rose 0.59% to 9344.64 while Hong Kong's Hang Seng tumbled 0.39% to 17475.84. China's Shanghai Composite fell 0.94% to 2651.41.
