Stocks fall, endangering second week of gains

Wall Street pulled back Friday as traders collected some profits and sent financial shares lower again.

After starting the day mixed stocks veered lower in the afternoon, threatening to end the market’s first two-week gain in close to a year.

The relatively quiet pullback followed double-digit gains since last week, which in less vexing times might have been the kind of advances investors might expect to see over the course of an entire year.

Friday’s calm could be tied to a mixture of exhaustion and caution. The Fed jolted the market this week by announcing plans to buy Treasury securities to revive lending.

Stocks initially jumped on Wednesday when the plans were announced but then fell Thursday as investors became concerned that the Fed’s huge injection of money into the economy could cause inflation.

Other markets showed big moves during the week as well. In just two days, the dollar fell 5 percent versus the euro and 3 percent versus the yen. Oil prices soared 7 percent Thursday above $51 a barrel to the highest level this year.

Many analysts believe stocks were due for a pullback after the Dow Jones industrial average rose more than 14 percent over seven trading days. Considering how much the market has rallied, it appears to be holding up well.

Even with the declines this week, the Dow could still record its first two-week run of gains since the period ended May 2, 2008.

The stock market began to rally off of 12-year lows beginning two weeks ago after after several banks reported being profitable in the first two months of the year. Even after Thursday’s retreat, the Dow was still up 13 percent from its lows, and the S&P 500 index was up nearly 16 percent.

The question on Wall Street is whether there will be enough good news in the coming days to keep stocks rising.

Michael Binger, portfolio manager at Thrivent Investment Management in Minneapolis, said the market is signaling that the economy is hitting bottom. He said it shouldn’t be too difficult for stocks to keep moving higher because expectations have fallen so low.

“I think the stock market is saying that fourth quarter of 2008 and first quarter of 2009 may be the trough in negative news,” he said.

In midafternoon trading, the Dow industrials fell 115.89, or 1.6 percent, to 7,284.91.

Broader stock indicators also lost ground. The Standard & Poor’s 500 index fell 15.49, or 2 percent, to 768.55, and the Nasdaq composite index fell 29.74, or 2 percent, to 1,453.74.

The Russell 2000 index of smaller companies fell 11.96, or 2.9 percent, to 401.30.

Declining issues outnumbered advancers by about 4 to 1 on the New York Stock Exchange, where volume came to a heavy 1.36 billion shares.

Bond prices slipped. The yield on the benchmark 10-year Treasury note, which moves opposite its price, rose to 2.62 percent from 2.60 percent late Thursday. The yield on the three-month T-bill rose to 0.20 percent from 0.18 percent.

The dollar recovered modestly against other major currencies. Gold prices slipped.

Analysts have remained cautious over the past two weeks even as the market pushed higher since other rallies that looked like they could signal a market bottom have crumbled in the past year.

From late November until early January stocks rose 20 percent only to fall to new lows as fears grew about the health of the nation’s biggest banks and the prospects for the economy.

Market veterans say some skepticism among investors is healthy. They are also reassured by the step-stool approach the market has shown in recent weeks as big gains are followed by more modest moves. That gives traders time to make more reasoned assesments without simply diving into a market for fear of missing a big rally.

Investors also can expect some money managers will want to be doing some buying with the March 31 end to the first quarter approaching. Even with the recent gains stocks are still down by about half from their highs in October 2007.

While many traders contend a market bounce had been overdue after what felt like months of relentless selling there are others who say the underpinnings of the economy remain too weak to justify a sustained recovery.

The unemployment rate stands at 8.1 percent, its highest level since the wrenching recession of the early 1980s. And businesses and consumers alike are struggling to pay down big debts. Many consumers who aren’t hurting are still cutting back. That is fanning worries that the economy will only continue to shrink.

Some investors still bought into the rally in the past two weeks. As of midweek, investors had funneled $12 billion over the prior seven days into mutual funds that focus on U.S. stocks. That compares with $14.3 billion they pulled from these funds a week earlier, according to TrimTabs Investment Research.

Not all investors are willing to hold bets that troubled parts of the economy will soon recover. On Thursday and Friday, the financial stocks that led the latest rally pulled the market lower.

General Electric Co. tumbled Friday after several analysts lowered their earnings forecasts following the conglomerate’s statements a day earlier that its finance arm could just break even this year because of the weak economy.

The company often trades like a bank stock because GE Capital makes a variety of loans for credit cards, real estate and big equipment. GE fell 82 cents, or 8.1 percent, to $9.31.

Citigroup Inc. said it was shifting Edward Kelly, the former head of global banking for Citi Private Bank, to the role of chief financial officer, and naming Gary Crittenden, who has been CFO, as chairman of Citi Holdings. Citi Holdings is the portion of Citigroup that holds the bank’s riskiest assets. Citi fell 8 cents, or 3.1 percent, to $2.52.

Other parts of the economy remain a worry. FedEx Corp. fell $3.53, or 7.8 percent, to $41.57 after this week posted a 75 percent plunge in its quarterly profit because of weak demand. Investors often look to the package delivery company as an indicator of demand in the overall economy.

Overseas, Britain’s FTSE 100 rose 0.7 percent, Germany’s DAX index rose 0.6 percent, and France’s CAC-40 rose 0.5 percent. Japan’s stock market was closed for a holiday.

Copyright 2009 The Associated Press.