Stocks Turn Lower Day After Record Gains

Dow Rises Early On Government Plans To Buy Bank Stock Before Profit-Taking Sets In

(CBS/AP)  Wall Street ended a relatively calm session with a moderate loss Tuesday as investors, while pleased with the government's plans to spend $250 billion to buy stock in private banks, decided to cash in some of their profits from the previous day's massive advance.

It was the first time in nine sessions that the Dow Jones industrial average didn't close up or down in triple digits although it did swing in a 700-point range. The Dow closed down 76 points a day after its record 936-point jump.

Big advances by many bank stocks helped offset some of the declines in the Dow and the Standard & Poor's 500 index, giving them a better showing for the day than the Nasdaq composite index, which fell more than 3 percent. But the Nasdaq, dominated by technology stocks, also lagged ahead of a profit report from Intel Corp.

Profit-taking started creeping into the market after the Dow surged more than 400 points at the opening. Wall Street is expected to see jittery trading in the weeks and perhaps months ahead because of worries about the economy; stocks also tend to ratchet up and down when they're recovering from a plunge like the one Wall Street has suffered in the past two weeks.

"We don't know if the bottom is in," said Lincoln Anderson, chief investment officer and chief economist at LPL Financial in Boston, referring to the market's advance Monday after huge losses last week. "We certainly expect heightened volatility for a fair amount of time while we sort out just exactly what's going on."

Investors had snapped up stocks Monday in anticipation of the government's plan. President Bush said Tuesday the government will use a portion of the $700 billion financial bailout passed at the start of the month to inject capital into the nation's major banks, which have been slammed by souring mortgage investments. The move follows a similar one announced Monday by European governments to invest about $2 trillion in their own troubled banks.

Economist Lakshman Achuthan said that the government's investment in the banks was a necessary move for their survival.

"If the U.S. Treasury, the U.S. Government, is putting the full faith and credit of the United States behind an institution, a company, the company is not going to fail," Achuthan told CBS News correspondent Anthony Mason.

Investors are hoping extraordinary steps by government officials will help resuscitate stagnant credit markets.

"The tone is cautious," Anderson said. "I don't think anybody is pile driving into the market and doubling up."

The revised bailout plan differs from the original in that it aims to recapitalize banks, not just buy the troubled assets off their books at prices that could leave the banks with losses.

"This begins to penetrate the core of the problem," said Peter Cardillo, chief market economist at New York-based brokerage house Avalon Partners Inc.

But, he said, "there will be a point in time where the euphoria of the bailout plan begins to wear off and the market begins to face reality. And that reality is likely to be a sour earnings season, and that the economy is in recession."

According to preliminary calculations, the Dow fell 76.62, or 0.82 percent, to 9,310.99.

Broader stock indicators also declined. The Standard & Poor's 500 index fell 5.34, or 0.53 percent, to 998.01, and the Nasdaq composite index fell 65.24, or 3.54 percent, to 1,779.01.

Though the major indexes showed losses, advancing issues outnumbered decliners by about 9 to 7 on the New York Stock Exchange, where volume came to 1.88 billion shares.

Ryan Detrick, senior technical strategist at Schaeffer's Investment Research, said investors pleased about the government's bank plan gravitated toward industrial companies, seeing them as more likely to benefit from a revived credit market than technology companies. That helped send the Nasdaq lower.

"People are thinking more of the blue chips are going to respond," he said.

Light, sweet crude fell $2.56 to settle at $78.63 per barrel on the New York Mercantile Exchange.

The dollar was mixed against other major currencies, while gold prices declined.

The Dow remains 34.3 percent below its Oct. 9, 2007 record close of 14,164.53, and could fluctuate around these levels as investors await signs of stabilization in the housing and job markets.

Cardillo said he believes the worst lows are behind the stock market, but other analysts have shied away from saying Wall Street had reached a bottom. The Dow has not yet fallen below its low during the last bear market, the closing level of 7,286.27 on Oct. 9, 2002.

Investors have been trying to regain their footing after a gruesome week that obliterated about $2.4 trillion in shareholder wealth. The Dow came off an eight-day losing streak that amassed point losses of just under 2,400, or 22.1 percent, bringing the blue-chip index to its lowest level since April 2003. That 18.2 percent weekly plunge in the Dow was the worst in the index's 112-year history.

Following the Columbus Day holiday, the U.S. government bond markets reopened Tuesday and indicated that investors' desire for safe assets remains strong though overall demand appeared to ease. The three-month Treasury bill's yield rose to 0.27 percent from 0.21 percent late Friday, and the 10-year note's yield rose to 4.07 percent from 3.86 percent.

Banks appear to be growing somewhat more willing to lend to one another. The London interbank offered rate, or Libor, for three-month dollar loans fell to 4.64 percent from 4.75 percent. Libor is important because many consumer loans, including about half of all adjustable-rate mortgages, are tied to it.

The recent sell-off in stocks arrived amid a seize-up in lending, as banks and investors around the world grew fearful about the creditworthiness of other institutions following the September bankruptcy of investment bank Lehman Brothers Holdings Inc. and the subsequent failure of thrift bank Washington Mutual Inc. Tight lending conditions make it harder and more expensive for businesses and consumers to get a loan, a headwind for economic growth.

Robert Dye, senior economist at PNC Financial Services Group, said the government's actions likely will help revive the credit markets, where many businesses turn to fund day-to-day operations, but that investors' focus in the past month about the soundness of the financial system had left little time to address other concerns about trouble in the economy.

"These steps are not going to turn the real economy on a dime," he said of the government intervention. "The two keys to the fundamental economy right now are the job market and the housing market and both of those remain distressed."

"There isn't one bottom here. We're talking about multiple events. There will be a bottom in financial market and another in the labor market and one in the housing market. And they're not going to all line up," Dye said.

Many of the nine banks the government identified as ones in which it will invest advanced Tuesday. Among them, Citigroup Inc. rose $2.87, or 18 percent, to $18.62, while Bank of America Corp. rose $3.74, or 16 percent, to $26.53. JP Morgan Chase & Co. fell $1.28, or 3.1 percent, to $40.71.

Intel Corp. fell $1.06, or 6.2 percent, to $15.93 ahead of its quarterly earnings report, which arrived after the closing bell on Wall Street. The chip maker's earnings topped Wall Street's forecast though the company warned the financial crisis is making it difficult to project results and that its fourth-quarter sales could fall short of Wall Street estimates.

The Russell 2000 index of smaller companies fell 16.24, or 2.84 percent, to 554.65.

Asian and European markets shot higher. Hong Kong's Hang Seng index rose 3.19 percent, after a more than 10 percent increase on Monday. Japan's Nikkei index, catching up from the country's market holiday Monday, jumped 14.15 percent — the largest increase ever.

In Europe, Britain's FTSE 100 jumped 3.23 percent, Germany's DAX index rose 2.70 percent, and France's CAC-40 rose 2.75 percent.

[checkthepast]

I have discovered the real forms of nazis-soviets structures. I am warning all peoples of the world: all world will transform into a "hell om Earth" becauseof these structures of soviet and nazis togheter. That forms are imposible to penetrate, to proof, to find, to defeat. I will keep my promise: this planet will explode in less than 50 (fifty) years and all what will remain will be thousands of asteroids. But that will not sure defeat them.

Posted by camposanto

And I''m sure the Republicans will be blamed.

[lfrenchsmith]

Hey CBS - could you please remove "camposanto" remarks from here. This is no place for them. Thank you.

[generey]

camposanto is proof that LSD is still readily avilable.


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Posted by listenupfool at 03:50 PM : Oct 14, 2008

ROFLMAO! (I thought I was out there!).

[liberalme]

Why would anyone be uncomfortabl with $700 Billion dollars in the hands of Henry (I''ll take care of everything with NO oversight and no questions and no investigations) Paulson?

I wouldn''t trust this guy at high noon on Main Street with $5.00 of my money.

[samthetvcat]

---"Profit-taking started creeping into the market"---

That the market started to upturn at 9,100 is a maybe the sign that the market is anticipating the injection of the $250 billion into it.

The markets seem to be sensitive to those benchmark thresholds at the thousand - 9,000, 10,000 . . . like maybe the lesson of today is like is the market worthy of going over 10,000? It''s not that great. But is it such a dog it deserves to go below 9,000? Not with the Government on the cusp of placing an order for $250,000,000,000.00 worth of stock (?)

With that much money being injected though, how long are people going to wait before they expect to see signs of a return? Maybe the true bottom really is around 8,000 (?)

[latrocinor-2009]

I have discovered the real forms of nazis-soviets structures. I am warning all peoples of the world: all world will transform into a "hell om Earth" becauseof these structures of soviet and nazis togheter. That forms are imposible to penetrate, to proof, to find, to defeat. I will keep my promise: this planet will explode in less than 50 (fifty) years and all what will remain will be thousands of asteroids. But that will not sure defeat them.

Posted by camposanto


Makes as much sense and sounds as truthful as the usual libtards do.

One correction though, you left out Bush. Then all the libtards would agree with you.

[samthetvcat]

---"Aren''t their markets a lot smaller than the DOW? How much of that "around 2 Trillion" used to purchase bank stocks (nationalize the investment) was actually directly driving the gains (and not just a psychological push on the market)?"---
Posted by prometheus41

Yeah, I know what you''re saying - like are these Governments underpaying for the shares such that the purchase is really like 80% giveaway and only 20% share purchase because they really can''t pay full price without wreaking havoc on the market or something?

Maybe as these plans start to get explained with details it won''t sound so great in terms of the market (?)

[samthetvcat]

What stocks were people buying late in the day that made the market go up? I can''t find anything that went up . . .

[latrocinor-2009]

That''''s what working class taxpayers are for in a Republican OWNED democracy, right?
Posted by prometheus41

The so called loans paid for houses, construction materials, payrolls, sub contractors, workers, nails tools, small businesses running on credit cards to meet their payrolls and buy materials and all kinds of non-rich people stuff.

In other words the little people got to put REAL money in their pockets.

You are ignorant of where the REAL money ended up.

So the truly unqualified loan takers (who were given credit they really had no business getting) can pay their bills or if the credit default is bad enough the entire country can choose to pay the defaulted loans back but at pennies on the dollar. America got a bargain.

Now ask yourself TWO SIMPLE questions:

1. WHO wanted banking standards and regulations to be lowered?

2. WHO called those who opposed the lowering of standards and regulations "Mean Spirited" and "Racist" ?

[deckardbr]

Stocks were up yesterday, where''s the cry for a return of the bailout money?

[legacyabq]

so after the government buys into these banks, what happens.. Do they sit on the stock as a ont-time injection of cash, or will these stocks be re-sold in the future? Maybe the feds will start doing this more often, using the stock market to increase revenue by playing with budget money; gambling on increased revenues.. The state government here in New Mexico has a lot of money in the stock market, funds which are used for the state workers'' pensio fund.. We lost millions of sollars last week, according to local paper..
If the feds intend to sell later, fine, but I hope it stops there..

[that-one-2009]

have discovered the real forms of nazis-soviets structures. I am warning all peoples of the world: all world will transform into a "hell om Earth" becauseof these structures of soviet and nazis togheter. That forms are imposible to penetrate, to proof, to find, to defeat. I will keep my promise: this planet will explode in less than 50 (fifty) years and all what will remain will be thousands of asteroids. But that will not sure defeat them.


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Posted by camposanto at 12:21 PM : Oct 14, 2008

loserrrrrrrrrr....

[jimjus]

Because of Bush MCcain administration the stock market is crashing.

[egresor]

investors don''t know whether to trust the emergency measures or not.

bush and cheney''d brand of trickle down economics has damaged the very foundations of the US economy. and you step a bit lightly on the floors before actually moving money into the markets to see how firm they are.

if they don''t get a handle on things soon----it will drop into freefall and crash. and the governments cant print enough worthless paper to fix things.

[downsteamjim]

Once Obama seizes all private assets, the stock market will be meaningless.