3-Day Rally Ends Thursday On Wall Street
NEW YORK (CBSNewYork/AP) -- A three-day stock rally ended much like it began, with a steep and sudden turn.
Stocks started higher early Thursday but turned lower within 20 minutes. Indexes in the U.S. and Europe sank after Germany's main stock index, the DAX, suddenly dipped 4 percent. Traders struggled to explain the dive.
The Dow Jones industrial average fell 170.89 points, or 1.5 percent, to close at 11,149.82. It had been up 85 points shortly after the opening bell.
Bank of America Corp. jumped 9 percent on news that Warren Buffett will invest $5 billion in the troubled bank. BofA had lost half its value this year as investors grew worried about its need to raise capital and its growing liabilities related to subprime mortgages.
Other banks also rose after the billionaire investor gave his backing to Bank of America. Morgan Stanley gained 2.7 percent and Citigroup Inc. 4.8 percent. BofA and American Express Co. were the only companies in the Dow to rise.
This week's trading has been marked by a series of sudden reversals. Robert Stein, a money manager responsible for $1.2 billion at Astor Asset Management, said questions about the economy have made investors uncertain and the stock market more volatile. Gains made one day can disappear the next, or even in the same day.
"We're not seeing anything that's convincingly bearish enough to call another recession, but nothing optimistic enough to suggest that a recovery is going to regenerate," Stein said.
Friday could be another day of big swings as Federal Reserve Chairman Ben Bernanke gives a highly anticipated speech at a conference in Jackson Hole, Wyo.
Earlier Thursday, the government reported an increase in the number of first-time claims for unemployment benefits last week. The Labor Department said applications for benefits rose to 417,000, the highest in five weeks. The figure was inflated by a strike at Verizon which ended earlier this week.
The S&P 500 index fell 18.33 points, or 1.6 percent, to 1,159.27. The Nasdaq fell 48.06 points, or 1.9 percent, to 2,419.63.
The S&P 500, the benchmark for most money managers, has gained 3 percent this week but is still down 10 percent for the month. Thursday's drop broke a three-day rally in which the Dow gained 503 points.
Paul Zemsky, chief investment officer of ING Investment Management in New York, said this week's gains were a result of investors bargain-hunting after stocks fell too far over the past month. He also said some of the gains were caused by technical trading as investors bought shares in order to exit short positions, or bets that the market would continue to fall.
Zemsky expects to see more big swings as long as the fear of recession hangs over the market. "People are trying to adjust their positions to news," he said. "Once it's clear where the economy is headed, I think things will calm down."
There's plenty of speculation about whether Ben Bernanke will offer more support for the economy. It was at the same symposium last year that Bernanke first laid out an argument for the central bank's $600 billion bond-buying program.
Zemsky thinks there's little chance Bernanke will announce any new action. "There's nothing more than hope that Bernanke will drop a gift from the sky."
More than three stocks fell for every one that rose on the New York Stock Exchange. Trading volume was above average at 5 billion shares.
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