Stocks declined Wednesday amid profit-taking from the prior session's rally, a sharp drop in crude prices and lingering concerns about credit.
Crude oil pulled back by nearly $5, the biggest dollar drop in more than 17 years, to settle at $104.48 a barrel in New York Wednesday. Earlier this week, oil topped $111 a barrel. The Energy Department reported that crude inventories rose by 200,000 barrels last week, well below the 2.1-million increase expected. Gasoline inventories unexpectedly shrank.
Gold had its worst day in nearly two years, with the April contract plunging $59 to settle at $945.30Wednesday on the New York Mercantile Exchange. Other commodities also declined, including silver, copper and agriculture futures.
The Dow's commodity stocks -- Exxon Mobil, Chevron , Dupont and Alcoa -- accounted for about forty percent of the index's decline.
Some analysts pointed to impatience in the market.
"It's the post-Fed-meeting letdown," Paul Nolte, director of investments at Hinsdale Associates in Hinsdale, Ill., said of the afternoon sell-off. "Because the market is manic depressive ... it's looking at the Fed going OK, you had your meeting yesterday, what are you going to do in April?"
Others noted that there's still a lot of fear in the market, as evident in the Chicago Board Options Exchange Volatility Index, or VIX, which jumped 14 percent.
"Consumer credit issues continue to put stress on the market as seen Discover Financial's results today," explained Steve Neimeth, portfolio manager at AIG SunAmerica in Jersey City, N.J. "We have yet to see major issues with commercial credit but investors are increasingly cautious that problems there are just around the corner," Neimeth said.
Discover Financial , the No. 4 U.S. credit-card network, reported its net income fell 65 percent but topped forecastsamid a charge related to sale of its U.K. credit-card unit. Lower borrowing costs were what helped Discover beat expectations even as consumer spending slowed. Discover, which was spun off from Morgan Stanley last year, said its 30-day delinquency rate rose 62 basis points from last year to 3.93 percent.
Meanwhile, shares of Visa surged as high as $69 a share before settling at $56.50 as the largest U.S. credit-card provider made its debut on the the New York Stock Exchange. Shares had priced at $44, raising $17.9 billion in the largest initial public offering in U.S. history.
JP Morgan , which stands to make $1 billion from the Visa IPO, saw its shares rise more than 3 percent, then pulled back for a slightly lower finish.
"There are two ways we would go with [Visa] stock," David Menlow, president of IPOFinancial.com, told CNBC. "You buy it when it goes down and you buy it when it goes up, because they are the biggest and the best at what they do. They overshadow what happens with MasterCard ... Their growth and expansion plans are really staggering."
Among other credit-card providers, shares of Mastercard and American Express both declined.
In the wake of all the Fed actions in the past week and the collapse of Bear Stearns, there's a lot of buzz in the market that we may have already seen the bottom.
"I think we’re at the bottom of this so-called crisis. And I think we move higher from here," Fritz Meyer, senior investment officer at AIM Investments, told CNBC. "The Fed’s been fumbling around for the right key to unlock the liquidity log jam … I think they finally found it."
Neimeth agrees. "There are many investors who have huge cash on the sidelines," he said, referring to massive growth in money-market funds in the past three months. "This suggests to me that we're unlikely to get major capitulation. People put that money to work on dips."
Indeed, there is a lot of money on the sidelines. Long-term investors pumped a record amount of money into cash holdings in March, according to a Merrill Lynch survey of nearly 200 fund managers. Their appetite for risk dwindled near a record low as many felt there wasn't a compelling reason to jump off the sidelines just yet.
But Nolte said, "It's going to take time. It's going to be a grinding type of thing that wears people down. I'm still getting clients coming into my office saying, 'Can we buy China? What about gold? What about oil?' ... We won't get a meaningful rally until we've taken out everybody's confidence that this time it's for real."
The Office of Federal Housing Enterprise Oversight lowered the capital requirementon government-backed mortgage lenders Fannie Mae and Freddie Mac to 20 percent from 30 percent, a move that will provide up to $200 billion in immediate liquidity for stressed mortgage markets.
Jumbo-mortgage lender Thornburg Mortgage plunged 50 percent after the company said it would try to quickly raise about $1 billion to avert a bankruptcy filing.
Merrill Lynch shares tumbled 11 percent after the brokerage filed a lawsuit against a bond insurer, raising concerns that the firm may need to take more writedowns.
Morgan Stanley reported its profit dropped by one-third but beat expectations. Net income came in at $1.45 a share, blowing past estimates of $1.03 a share.
The news from Morgan comes a day after Lehman Brothers and Goldman Sachs cheered the markets yesterday with smaller-than-expected declines in revenue.
News has emerged that Morgan Stanley, Lehman Brothers and Goldman Sachs are testing the Federal Reserve's so-called discount window after the central bank took the unprecedented step over the weekend of opening the window to investment banks. Lehman borrowed $2 billion, sources said. It is unclear how much Goldman and Morgan have requested.
Bear Stearns shares pulled back after rallying above $6 a share this morning. Analysts are closely watching the stocks's unusual jumps after J.P. Morgan's weekend offer to buy the firm for $2 a share.
MF Global rallied for a second day, after taking a beating on Monday amid liquidity concerns. The largest futures brokerage on Tuesday announced that it is increasing margin requirements in its equities-derivatives business.
General Mills, which makes cereal, yogurt, soup and other packaged foods, reported its net income soared 61 percent, helped by cost-cutting measures, commodities hedges and higher sales.
Starbucks, which has dropped more than 40 percent in the past year, slipped after CEO Howard Schultz said he plans revive growth in an economy that's in a "tailspin" but added that the is no "silver bullet." The coffee chain plans to roll out a line of energy, health and wellness products. It also announced a customer-loyalty program which will include free coffee refills and free add-ons such as soy milk and flavored syrup.
In the technology sector, Adobe shares advanced after the software maker beat earnings forecasts, helped by demand for the company's design software including Photoshop, Illustrator and Dreamweaver.
Priceline slipped after Susquehanna Financial lowered its rating on the stock to "neutral" from "positive." Analyst Marianne Wolk recommended that investors look at lower-valued stocks in the sector such as Google or eBay .
Nike shares ticked higher ahead of the atheletic-gear maker's earnings, due out after the closing bell. Analysts expect earnings of 81 cents a share. There are some concerns about inflation in China, where Nike has manufacturing operations, but Jeff Macke, of CNBC's "Fast Money," says with Nike's unbelievable overseas exposure, "you have to own this stock" heading into the Olympics.
Merck said federal regulators have given a priority review to the drug maker's request to expand the reach of its cervical-cancer vaccine Gardasil to women ages 27 through 45.
THURSDAY: Weekly jobless claims; Philly Fed report; FedEx earnings; Bond market closes early
FRIDAY: Financial markets closed for Good Friday holiday
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