A selloff in the Treasury markets stole the show on Wednesday as the Dow plunged nearly 175 points -- undoing virtually all of Tuesday's confidence-inspired rally -- on fears that higher interest rates will hinder an economic recovery.
Today’s Markets
The Dow Jones Industrial Average lost 173.47 points, or 2.05%, to 8300.02, the S&P 500 sank 17.27 points, or 1.90%, to 893.06 and the Nasdaq Composite fell 19.35 points, or 1.11%, to 1731.08. The consumer-friendly FOX 50 slumped 12.49 points, or 1.87%, to 655.94.
Reversing their normal relationship, Wall Street took its cues from the bond market as stocks took a turn for the worst after the 10-year note jumped to its highest level since mid-November despite a successful five-year note sale.
“The Treasury market is trading in kind of a panic mode,” said Nick Kalivas, vice president of financial research at MF Global. “It’s just making people nervous that the economy is not going to do well if rates continue to shoot up.”
The selloff on Wall Street erased most of the Dow's 200-point surge from Tuesday, which had been based on hopes an unexpected jump in consumer confidence would carry the U.S. to a second-half recovery.
“I’m kind of not surprised where we are right now but I’m surprised why we got there,” said Jonathan Corpina, senior managing partner at Meridian Equity Partners. “Investors are just trying to figure out what’s the biggest focus of the day. Clearly it’s lying in the Treasuries today.”
The Dow was led lower on Wednesday by Proctor & Gamble (PG) and General Motors (GM), which came a day closer to a seemingly-inevitable bankruptcy filing. Just a handful of blue-chip stocks closed in the green, including Merck (MRK) and Caterpillar (CAT). The Dow has fallen in five of the last six days.
The Nasdaq Composite didn’t fall as hard as its counterparts as tech stocks rallied around SanDisk (SNDK), which unveiled a patent deal with Samsung
The Dow fell more than 100 points as the selloff in the bond market picked up steam. The 10-year note soared to a fresh high of 3.6% on fears of oversupply even after the U.S. successfully sold $35 billion of five-year notes Wednesday.
“It’s basically showing that the Fed’s buying of Treasuries is not really stabilizing conditions in a serious way,” said Kalivas.
Bond traders remain skittish about the government's ability to fund government rescues that have helped lead to an expected $1.75 trillion budget deficit. That ability will be tested again on Thursday in a $26 billion seven-year note sale.
The markets failed to avoid a selloff despite a number of positive developments.
On the economic front, the National Association of Realtors said existing home sales ticked up 2.9% in April to an annual rate of 4.68 million units. The report was slightly better than economists had predicted but did not blow Wall Street's expectations out of the water like Wednesday's confidence report.
Also, the markets received a flurry of positive earnings reports from retailers such as American Eagle Outfitters (AEO), Staples (SPLS), Borders (BGP) and Dollar Tree (DLTR). On the other hand, agricultural company Monsanto (MON) warned it will miss the Street's estimates in the third quarter, American Eagle issued cautious guidance and Zale (ZLC) plunged on its quarterly loss.
Meanwhile, the specter of a GM bankruptcy, which would be the largest industrial failure in U.S. history, continues to loom over Wall Street.
GM's shares tumbled after the auto maker said its bond exchange offer to exchange 90% of $27 billion in unsecured debt failed to reach its goal. With a government-imposed June 1 deadline quickly approaching, GM said its board will meet to review its options.
Crude oil didn't help the bulls' case on Wednesday as the commodityclimbed for the third-straight day, ending at fresh 2009 highs a day before a key OPEC meeting. Crude closed up $1 per barrel, or 1.60%, to $63.45.While the 86% surge from February lows is a positive omen for the global economy's prospects, it represents a headwind for cash-strapped consumers.
Corporate Movers
Chrysler LLC scored another legal victory as a bankruptcy court judge denied a motion that could have delayed the sale of the auto maker's assets to an entity led by Italian auto maker Fiat. Chrysler is widely expected to receive a green light for the sale in the coming days.
Bank of America (BAC) said it has raised $26 billion in capital so far and is "well on its way" to reaching the government's mandate to plug a $33.9 billion shortfall. BofA said it hopes to use the cash to "reduce reliance on government support for the company."
Zale (ZLC) lost one-fifth of its market value after the jeweler an adjusted-loss of 73 cents per share, missing estimates by nearly 40 cents. Zale suffered a 20.5% plunge in quarterly sales amid the recession.
Monsanto (MON) projected a third-quarter profit of $1.15 per share, well shy of analysts' expectations for $1.58 per share. The company said it remains on track to meet the lower end of its full-year guidance.
American Eagle Outfitters (AEO) beat the Street with a first-quarter profit of 11 cents per share despite a steeper-than-expected 4% decline in revenue. The retailer sees second-quarter earnings of 12 cents to 15 cents per share, compared to the Street's view of 14 cents.
Dollar Tree (DLTR) posted a stronger-than-expected quarterly profit of 66 cents per share as the discount retailer's same-store sales jumped 9.2%. The company boosted its 2009 guidance within Wall Street's expectations and projected an earnings beat for the second quarter.
Staples (SPLS) topped expectations with an adjusted-profit of 22 cents per share, which was off by 33% from a year ago. The office supplies retailer reaffirmed its synergy expectations related to its takeover of Corporate Express.
Borders (BGP) reported a narrower-than-expected adjusted-loss of 27 cents per share as the bookseller's cost-cutting efforts offset an 11.6% tumble in revenue.
Global Markets
European markets closed in the green as London's FTSE 100 rose 0.1% to 4416.23, Germany's DAX jumped 0.3% to 5000.77 and France's CAC 40 rallied 0.76% to 3294.86.
In Asia, Japan's Nikkei 225 added 1.37% to 9438.77 and Hong Kong's Hang Seng surged 5.26 % to 17885.27.
