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Stocks slide, shrugging off “manufacturing rebound”

Posted by smeddum on September 2, 2009

Stocks slide, shrugging off manufacturing rebound


By SARA LEPRO, AP Business Writer –

Tue Sep 1, 2:16 pm ET

NEW YORK – The stock market’s six-month rally finally gave way Tuesday, succumbing to resurgent worries about the fragility of the banking industry and the economy as a whole.
A mix of rumors and growing concerns that more banks will fail pummeled the financial sector, which had posted some of the biggest gains since Wall Street began its huge advance in March. Investors saw a batch of economic reports that just weren’t good enough as a parallel reason to sell.
All the major indexes fell more than 1.5 percent, including the Dow Jones industrials, which lost about 160 points. The biggest declines came from financial and energy companies. Meanwhile, bond prices edged higher as investors sought the safety of government debt. Oil prices fell sharply on concerns that the economy isn’t strong enough to support higher demand for energy.
Analysts said there were other forces at work in the market, including lingering concerns about the Chinese economy, whose problems would affect the rest of the world. And investors, cognizant of the market’s tendency to sag in September, also seized upon that to justify pulling money out of stocks.
Banks and insurance companies were the most notable losers, but they also had been pumped up the most in a rally that lifted the market more than 50 percent since hitting 12-year lows in March.
“Financials are under pressure, weighing on the market,” said Peter Cardillo, chief market economist at New York-based brokerage house Avalon Partners Inc. “They were the market leaders during the rally.”
Analysts reported several rumors were making the rounds in the market. But with the government reporting last week that 400 banks were in trouble during the second quarter, investors’ anxiety about the health of the financial industry is heightened.
The plunge in stocks came even as the Institute for Supply Management reported that U.S. manufacturing grew in August for the first time since January 2008. The market also shrugged off another positive economic report, the sixth straight monthly increase in pending home sales.
Investors have long since factored in an economic recovery into stock prices, but analysts, worried that investors have been too optimistic, have been anticipating a downward turn. Trading has been choppy recently as investors also questioned whether their bets on the economy have been warranted.
“The market’s priced all of this in, and a lot more, quite frankly,” said Jeff Buetow, managing partner at Innealta Portfolio Advisors. “I just don’t see the growth out there.”
On the surface, the day’s economic numbers were good. But a deeper look at the data gave some cause for concern.
Analysts said both the manufacturing and housing reports got a boost from government stimulus efforts, including the Cash for Clunkers program that has since expired, which means the recovery in those sectors may not continue at the same pace.
“In both cases it seems headlines overstate details by a touch,” said Tom di Galoma, head of U.S. rates trading at Guggenheim Capital Markets LLC. “People reviewed the numbers and said this type of demand is just not sustainable.”
Investors are also hesitant to buy stocks ahead of Friday’s employment numbers, which could reveal more bad news about the job market, one of the worst remaining problem areas in the U.S. economy.
The Dow Jones industrials dropped 157.42, or 1.7 percent, to 9,338.86. The Standard & Poor’s 500 index fell 18.34, or 1.8 percent, to 1,002.28, while the Nasdaq composite index fell 33.95, or 1.7 percent, at 1,975.11.
Nearly five stocks fell for every one that rose on the New York Stock Exchange, where volume came to 965.4 million shares.

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