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Stock market rally runs out of steam
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Discussion PolicyBy Frank Ahrens
Washington Post Staff Writer Wednesday, July 7, 2010
Stocks burst out of the gate Tuesday morning in a somewhat surprising but welcome surge following last week's big sell-off, but the rally ran out of steam by midafternoon and only a late push prevented an eighth consecutive day of losses for investors.
Tuesday was all about bargain-hunting on Wall Street. Investors and traders bought up historically strong stocks that suffered damage during last week's dismal run. Those big losers, such as aluminum giant Alcoa and heavy-machinery maker Caterpillar, were winners on Tuesday, gaining 2.1 percent and 1.1 percent, respectively.
The roller-coaster ride Tuesday illustrated the uncertainty of a market that seems incapable of sustaining more than a brief rally. Investors remain concerned about the underlying fundamentals of a U.S. economy that still is struggling to add private-sector jobs as well as a possible slowdown in overseas economies.
The Dow Jones industrial average gained 57.14 points, or 0.6 percent, to close at 9743.62 after jumping more than 170 points in early trading. The Dow climbed back up above 9800 and appeared to be making a run at 9900, but investors' enthusiasm lasted only until lunchtime, when the buyers went home. Over the past two weeks, the Dow has dropped more than 7 percent and hit its lowest level since October. The average of 30 blue-chip stocks is still down 6.6 percent for 2010 but moved closer to positive territory for July, a historically volatile month for stocks, after Tuesday's gains.
The broader Standard & Poor's 500-stock index rose 5.48, or 0.5 percent, to close at 1028.06, while the tech-heavy Nasdaq closed up 2.09, or 0.1 percent, at 2093.88.
European stocks had a consistently strong day of trading Tuesday, with markets in London and Paris gaining nearly 3 percent and Berlin rallying more than 2 percent. Traders and investors were encouraged by reports last week that banks on the continent had borrowed less money from the European Central Bank than had been expected. But that may all change later this month, when the Committee of European Bank Supervisors is set to release the results of its "stress tests" on European banks, similar to what U.S. banks went through last year.
In the United States, stocks were little affected by morning data that showed that growth in the service sector is slowing down, adding to fears of a stalled economic recovery or worse, a double-dip recession. According to the Institute for Supply Management, the index of service-sector activity in the United States slipped backward in June to 53.8, compared with the 55.4 recorded in May. But the number is still above 50, the level that suggests an economy is in expansion, as opposed to contraction.
In China, the government launched what may prove to be the biggest initial public offering in history. The Agricultural Bank of Shanghai -- a bank founded in 1951 by no less than Mao Zedong -- raised an eye-popping $19 billion in its IPO on Tuesday, a figure that could rise to $22 billion. Twenty times more institutions sought to buy shares than were able to, a sign that big investors still believe in China's growth potential. AgBank is the last of China's four state-owned banks to go public.
On Wall Street, last week's lone star fizzled Tuesday. Electric carmaker Tesla, which had its IPO last week, traded below its initial price of $17 a share, closing Tuesday at $16.11, down 16.1 percent.
