Stocks: No staying power
Wall Street retreats as investors step back after the previous session's historic rally, with the tech-heavy Nasdaq hit hardest.
NEW YORK (CNNMoney.com) -- Technology shares led a broader retreat Tuesday as the government's plan to spend $250 billion on stock in banks failed to extend the previous session's historic rally.
Credit markets eased a bit, with a key overnight bank lending rate falling. Treasury prices slumped, raising the corresponding yields. The dollar fell against the euro and the yen. Oil, gold and gas prices eased.
The Dow Jones industrial average (INDU) lost 76 points, after having fallen as much as 302 points in the afternoon and having risen as much as 406 points in the morning. The decline was equal to 0.8%.
The Standard & Poor's 500 (SPX) index lost 0.5% after having been on both sides of unchanged throughout the session.
The Nasdaq composite (COMP) tumbled 3.5%, with some of its large technology shares slumping after the previous session's advance. The Nasdaq had been higher in the morning and lower in the afternoon.
After the close, Intel (INTC, Fortune 500) reported higher quarterly earnings that edged estimates on higher revenue that was short of forecasts. The chipmaker also reported a bigger-than-expected rise in gross margins, a key measure of profitability. Shares gained 5.5% in extended-hours trading.
Stocks rallied in the morning as the government detailed the nuts and bolts of its bank bailout plan. But the early advance petered out as investors showed some caution after Monday's big rally.
The weakness was a little bit of buyer's remorse, said John Wilson, chief technical strategist at Morgan Keegan. "After a day like yesterday, you'd expect a little to come off the table," he said.
The Dow rallied 936 points Monday - its best one-day point gain ever and best day on a percentage basis since 1933 - on bets that the worst of the credit crisis is over. Investors welcomed more specifics on the $700 billion bank bailout plan as well as a series of global initiatives aimed at loosening up credit.
The S&P 500 rose 104 points, its best single-day point gain ever. The Nasdaq's jump of nearly 195 points was the 10th best ever.
In the short term, market pros will be looking for signs as to whether last week's lows marked a bottom for the bear market.
"We came from an environment in which sentiment was as sour as I've ever seen it, so we saw a bounce or a melt up," said Hank Smith, chief investment officer at Haverford Investments.
However, the stock market is not out of the woods yet, Smith said. Economic reports are going to continue to be weak and third-quarter results are expected to reflect that. Profits are expected to have fallen 7.5% from a year ago, according to the latest tallies from Thomson Reuters.
Last week was the Dow's worst ever, capping a stunning eight-session selloff that cut 2,400 points and 22% off the blue-chip indicator. The selling erased $2.4 trillion in market value from the Dow Jones Wilshire 5000, the broadest measure of the stock market.
Wilson said that the level of investor fear last week and the strength of the rally Monday suggest that a low has been put in place, but that the next few weeks will better determine that. For now, he said he'd like to see several sessions of flat to modestly lower trading followed by another good up day.
$700 billion: The Treasury Department, unveiling details of the $700 billion bailout plan approved earlier this month, said Tuesday it will pour $250 billion directly into the nation's banks in a dramatic move meant to stabilize the flailing financial system.
Nine of the largest banks have already agreed to participate. The program calls for the government to buy preferred shares in the banks, hold those shares until the market stabilizes and then sell them back to the banks. The program also limits executive pay.
The government is insuring all deposits in non-interest bearing bank accounts. This enables companies to manage their payroll and checking accounts without fear of surpassing the limits backed by the Federal Deposit Insurance Corp.
President Bush has also asked Congress for an additional $100 billion of the $700 billion to aid financial institutions.
And the Federal Reserve said it will start buying huge amounts of commercial paper starting Oct. 27, putting a start date to a program announced last week. Commercial paper is a key form of short-term debt that companies rely on for daily operations. (Full story)
The Fed has also pumped funds - possibly trillions of dollars - into the banking system in an effort to get banks to lend again. Central banks around the world have also stepped in to keep the system functioning.
But the credit markets have remained frozen amid the housing market collapse and subprime lending meltdown. Stocks have retreated as the credit crisis dragged the already strapped economy deeper into what many say is a recession.
Earnings: Dow component Johnson & Johnson (JNJ, Fortune 500) reported quarterly earnings that rallied from a year earlier and topped estimates. The health care company also boosted its full-year profit forecast. Shares gained 2%.
PepsiCo (PEP, Fortune 500) reported lower quarterly earnings that missed estimates, warned that 2008 profits won't meet forecasts, and said it was cutting jobs as part of a global cost-cutting plan. Shares fell 12%.
Rival Coca-Cola (KO, Fortune 500) slumped 7% in tandem. The Dow component releases its quarterly earnings Wednesday morning.
On the move: A variety of financial services stocks gained, led by Bank of America (BAC, Fortune 500), Citigroup (C, Fortune 500), National City (NCC, Fortune 500), Wachovia (WB, Fortune 500), Wells Fargo (WFC, Fortune 500), Morgan Stanley (MS, Fortune 500) and Merrill Lynch (MER, Fortune 500).
JPMorgan Chase (JPM, Fortune 500) defied the trend, sliding ahead of its quarterly earnings due out Wednesday morning. Wells Fargo is also reporting Wednesday morning.
But the sector was the only one to hold onto gains through the afternoon, as investors dumped a number of shares that had benefited from Monday's big rally. Technology and commodity stocks were hit the hardest.
Microsoft (MSFT, Fortune 500), Dell (DELL, Fortune 500), Oracle (ORCL, Fortune 500) and Cisco Systems (CSCO, Fortune 500) led the technology declines.
Exxon (XOM, Fortune 500), Chevron (CVX, Fortune 500), Valero Energy (VLO, Fortune 500) and Halliburton (HAL, Fortune 500) led the oil services selloff.
Aluminum-maker Alcoa (AA, Fortune 500) lost 6% and was one of the Dow's biggest losers.
Market breadth was negative. On the New York Stock Exchange, losers topped winners eight to seven on volume of 1.88 billion shares. On the Nasdaq, decliners beat advancers three to two on volume of 2.97 billion shares.
Credit market: A variety of bank lending indicators declined, in a sign that some of the recent global initiatives may be starting to work. Treasury markets were closed Monday in the United States because of Columbus Day.
Libor, the overnight bank-to-bank lending rate, fell to 2.18% from 2.47% Friday, according to Bloomberg.com.
The three-month Libor, what banks charge each other to borrow for three months, fell to 4.64% from 4.75% Monday.
The Libor-OIS spread, a measure of cash scarcity, decreased to 3.39% from a record high of 3.67% Friday.
The TED spread, which is the difference between what banks pay to borrow from each other for three months and what the Treasury pays, edged up to 4.30% from an earlier reading of 4.09%. The TED spread stood at a record 4.65% Friday. The wider the spread, the more reluctant banks are to lend to each other.
Treasury bond prices tumbled, raising the corresponding yields. The 10-year note lost 1-20/32, yielding 4.07% from 3.88% late Friday. Treasury prices and yields move in opposite directions.
The yield on the 3-month Treasury bill, seen by many as the safest place to put money in the short term, stood at 0.25%. That was not far from where it stood Friday, with investors willing to take a meager return on their money rather than risk stocks. Last month, the yield on the 3-month bill skidded to a 68-year low around 0%.
Other markets: U.S. light crude oil for November delivery settled down $2.56 to $78.63 a barrel on the New York Mercantile Exchange. Oil prices have tumbled on bets of slowing demand since the price of crude hit an all-time high of $147.27 a barrel on July 11.
Gasoline prices fell another 4.3 cents overnight, to a national average of $3.163 a gallon, according to a survey of credit card activity by motorist group AAA. It was the 27th consecutive day that prices have decreased - in the past month alone, they're down more than 63 cents a gallon.
COMEX gold for December delivery settled down $3 to $839.50 an ounce.
In currency trading, the dollar slipped against the euro and the yen. 
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