Tech Only Salvation for Wobbly Stocks
Fickle Wall Street traders thwarted hopes for a rally, as unshakeable fears from the credit freeze combined with the expiration of short-selling rules to hold down the stock market.
Technology shares helped salvage an otherwise lackluster day in which banks and automakers languised. The Dow and S&P 500 spent most of the day waffling between breakeven and about 1 percent losses, while the Nasdaq fought to get over the breakeven point.
Nevertheless, hope still presented itself that a capitulation selling bottom might be on the horizon for the battered market with its six-day losing streak.
"To me it just feels like the market is trying to feel its parameters out," Robert Hardy, of LaBranche & Co., said on CNBC. "I came in today bullish, I'm still bullish today. I think we're going to have a crackback rally. There's a rally out there. There's a rip-your-face-off rally out there because everybody is short. Everyone is still negative."
Stocks popped off the open, but as Morgan Stanley led a charge lower in a number of big banks, while shares of leading automakers got pummeled amid credit worries.
Banking issues also ceded positive territory as industry leaders continued an unwillingness to lend with Libor and credit spreads growing. There also were whispers that shorts were taking aggressive positions in some leading financials.
Morgan Stanley shares tumbled amid pessimism surrounding the broker-bank's looming earnings report and doubts over the status of a planned $9 billion investment by Japan's top bank, Mitsubishi UFJ Financial Group. There also was speculation that the end Wednesday of a ban on short-selling financials sparked the Morgan Stanley selloff, while the company's mortgage-default costs rose today as well.
At the same time, General Motors shares hit levels not seen since 1951, while Ford also was down sharply. The leading automakers have been saying the credit freeze will take a chunk out of their sales. There also was speculation that the short-selling expiration was hitting those companies as well.
"I think the bottom is in sight, maybe not tonight, tomorrow or next week but pretty close," Harry Clark, founder of Clark Capital Management, said on CNBC. "I think it's time to stasrt putting your cash to work here. You can't sit around and watch it go by, because you'll miss the first 10 to 15 percent up and then you're stuck." See Clark's full comments in video at left.
There was a significant downturn in volatility.
The CBOE Volatility Index posted a substantial drop, a day after posting an intraday high and flirting with 60.
Hopes for a rally sprang from a Dow stalwart preannouncing earnings the day before that pleased the market.
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International Business Machines said third-quarter net income rose 20 percent to $2.8 billion, while earnings per share from continuing operations rose 22 percent to $2.05, against analyst estimates of $2.01.
IBM, which earlier helped drive an opening-bell rally, zigzagged through the day after leading the opening-bell rally, making substantial moves both higher and lower.
Tech Tries to Save the Day
Nasdaqleaders Apple, Research in Motion , and Microsoft helped temper losses as the tech gauge fought for higher ground even as its counterparts lagged behind.
But the banking worries, which were not allayed by Wednesday's coordinated global central bank rate cuts, overwhelmed trading. Intel was the leading gainer on the Dow Jones Industrial Average as bluechip bank stocks were mixed.
"Moves like what the Fed has done actually show a lack of confidence in the market and it says that we need to continue to shore up the banking system and we aren't there yet," Steven Sanders, of First Genesis Financial, said on CNBC. "So the initial interpretation of this should probably drive markets down. I think when we begin to look at about six or seven months down the road we will show that this was a very healthy sign for us."
Meanwhile, American International Group continued to be one of the chief drags on the market.
AIG could get nearly $38 billion more under a program announced by the Fed in addition to the $85 billion government loan it got last month.
Under the new plan, the Federal Reserve Bank of New York will take up to $37.8 billion in investment-grade, fixed-income securities from AIG in exchange for cash.
AIG led Dow losers, with the bluechip index as well as the Standard & Poor's 500 hampered overall by jitters surrounding the insurance industry.
While MetLife shares rebounded after a huge selloff Wednesday on the firm's preannouncement of bad earnings and an even worse outlook, both Prudential Financial and XL Capital plummeted.
Elsewhere in the financial sector, Citigroup could not sustain momentum on news that the federal government has pushed the bank and Wells Fargoto reach an agreement that would avoid a court battle over the fight for Wachovia, sources have told CNBC.
If a deal goes through as talks currently stand between Citigroup and Wells Fargo, Citigroup would receive between 20 percent and 25 percent of Wachovia's $440 billion in deposits, while Wells Fargo would receive the remainder of the firm, including the rest of Wachovia's deposits and its investment bank.
On Thursday, the Wall Street Journal reported that both Citigroup and Wells Fargo were surprised by the concentration of assets on Wachovia's books that they regard as low-quality.
A pair of economic reports had little impact on markets; both weekly jobless claimsand natural gas inventories were in line with estimates.