NEW YORK - Wall Street turned cautious Tuesday after a two-day rally as disturbing corporate news reminded investors of the magnitude of the economy’s troubles. Stocks tumbled while demand for the safety of government debt surged.
Although the market was down sharply, the pullback was uneven, showing that investors are uneasy but also very selective. The Dow Jones industrials fell 243 points, or 2.72 percent, but the Nasdaq composite index fell a more moderate 1.55 percent as investors decided to buy some hard-hit technology names.
Meanwhile, demand for the safety of Treasury bills spiked so high that investors were willing to earn no return at all on investments bought at a Treasury Department auction. Interest rates on four-week Treasury bills slid to zero from 0.04 percent in an auction just a week earlier.
“The markets are just expressing a tremendous amount of ambivalence about the future,” said Marian Kessler, co-portfolio manager of the Becker Value Equity Fund in Portland, Ore. “The market is grappling with what is certainly going to be a fairly deep recession in 2009.”
To be sure, recent trading has indicated that big institutional investors are hedging their bets and putting money on both sides of the market. They have been looking for signs of recovery in a stock market that is down 43 percent from its October 2007 peak but are also keeping a hand in cash and bonds in case a run-up in stocks since last month gives way.
Despite Tuesday’s drop on Wall Street, there is budding optimism about stocks simply because of the more orderly trading that has emerged since mid-November. Some observers speculate that the market is slowly forming a bottom, but the drumbeat of poor economic news makes it unlikely that the market’s overall volatility is waning.
Investors are worried that companies’ difficulties could make an economic turnaround harder. FedEx, a barometer of the U.S. economy, cut its forecast for fiscal 2009 earnings and capital spending as the slumping economy eroded package deliveries. Meanwhile, Danaher Corp., which manufactures bar code readers and Sears’ Craftsman tools, reduced its fourth-quarter profit forecast and announced plans to cut 1,700 jobs.
The Dow Jones industrial average fell 242.85, or 2.72 percent, to 8,691.33 after logging a gain 560 points over Friday and Monday.
Broader stock indicators also declined. The Standard & Poor’s 500 index fell 21.03, or 2.31 percent, to 888.67. The Nasdaq composite index fell 24.40, or 1.55 percent, to 1,547.34.