Stocks finished lower Wednesday despite a late comeback attempt after the Fed's beige book showed signs of improvement in regional economies.
The Dow Jones Industrial Averageshed 26 points, or 0.3 percent, to close at 9,070.72. The S&P 500fell 0.5 percent, while theNasdaq lose 0.4 percent.
The CBOE Volatility Index, widely considered the best gauge of fear in the market, rose above 25.
Traders said given all the dismal news, stocks could've had it much worse but day traders are keeping stocks from any dramatic declines: They come in mid-morning and short the market aggressively, then cover by the end of the day.
Stocks had been lower all day, battered by weak Treasury auction results, dismal durable-goods orders and a sharp drop in oil prices.
About $39 billion of five-year Treasury notes was auctioned at a high yield of 2.689 percent, short of the 2.63 percent expected. The bid-to-cover ratio was 1.92, the weakest since September. This came after yesterday's two-year auction showed weakness in foreign demand. A 7-year auction is coming tomorrow.
The pace of the recession has slowed or stabilized in most areas of the U.S., the Fed said in its "beige book" report, so named for the color of its cover, though labor markets were "extremely soft."
Orders for durable goods, big-ticket items such as refrigerators and cars, fell 2.5 percentin June, much more than expected. Mortgage applications fell for the first time in four weeks.
Crude oil fell more than $3, settling at $63.25 a barrel, after a surprise jump in inventories.
Also weighing on the market were worries about a potential market bubble in Chinathat could cause Chinese lenders to hit the brakes when it pops. The Shanghai Composite Index plunged 5 percent today, after surging 90 percent this year.
This came after the Dow snapped a three-day winning streakTuesday amid a disappointing batch of earnings and a slump in consumer confidence. Still, there were some bullish components to yesterday's session: The Dow ended down just over 11 points, after being down as much as 100 points earlier in the session. And the Nasdaq pulled off a gain of 0.4 percent.
The market has been on a "sugar high" this month while the economy was still floundering, Pimco's Mohamed El-Erian told CNBC. The levels the market reached simply weren't in line with where the economy was at, he said.
The biggest decliners on the Dow were Caterpillar, General Electric and Alcoa. The biggest advancers were Bank of America, Verizon and AT&T.
Citigroup shares rose 8.4 percent after the U.S. government announced it would take a 34 percent stake in the troubled bank. This comes after the company’s move to raise capital by putting its Smith Barney brokerage into a joint venture controlled by Morgan Stanley.
The big buzz of the day was that Micro-hoo is finally here: Microsoft and Yahoo have finally reached an agreement! The tech titans brought years of flirtation and bickering to a close with a deal that will combine their search capacities to compete against Google .
Yahoo shares tumbled 12 percent, while Microsoft rose 1.4 percent.
This was just the latest wheeling and dealing from the tech sector: IBM agreed to buy SPSS, which makes analytics software, and Agilent Technologies agreed to buy scientific-instrument maker Varian. Plus, a pair of deals in the wireless sector: Sprint Nextelis buying Virgin Mobil USAand Swedish telecom Ericsson is buying Nortel's wireless unit.
In earnings news today, Sprint shares skidded 12 percent after the mobile-services company reported a wider-than-expected lossas it continued to lose postpaid monthly bill-paying customers. Though, the results did get a little boost from Sprint's exclusivity agreement with Palm to provide mobile services for its Pre phone, which launched in early June.
Time Warner shares fell 1.8 percent after the media giant reported an 8-percent drop in profit as revenue continued to slide but still beat expectations.
And ConocoPhillips dropped 3.5 percent after the company reported its profit plunged 76 percentamid the sharp drop in oil prices but beat analysts' target by a penny.
This came after BP reported Tuesday that its profit was cut in half by the drop in oil prices. Later this week, we'll get results from Dow energy components ExxonMobil and Chevron .
Honda’s American depository receipts soared nearly 6.9 percent after the Japanese automaker posted a plunge in operating profit but beat expectations. The company lifted its forecast for the year on an improved outlook for global car sales.
After the bell today, credit-card provider Visa beat earnings expectations but narrowed its revenue forecast to the low endof its previously stated range of 11 to 15 percent.
Volume was light, with about 1.25 billion shares changing hands on the New York Stock Exchange. Decliners outpaced advancers, 3 to 2.
But once again, new highs outnumbered new lows. There were 83 new highs and 2 new lows on the New York Stock Exchange.
Still to Come:
THURSDAY: Weekly jobless claims; Seven-year Treasury auction results; Earnings from AstraZeneca, ExxonMobil, Colgate-Palmolive, Eastman Kodak, Kellogg, MasterCard, Motorola, Disney, MetLife
FRIDAY: GDP; Chicago PMI; Earnings from Chevron
Send comments to cindy.perman@nbcuni.com.
