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Stocks end a brutal August with meager gains

The stock market ended its worst August since 2001 with meager gains after minutes from the latest Federal Reserve meeting showed officials' increasing concern about the economy.
/ Source: The Associated Press

The stock market ended its worst August since 2001 with meager gains Tuesday after minutes from the latest Federal Reserve meeting showed officials' increasing concern about the economy.

Stock indexes gave up most of their gains in mid-afternoon after the release of minutes from the Fed's Aug. 10 meeting. Fed officials said during their discussions that they recognized that the economy might need further stimulus beyond the purchases of government debt the central bank announced that day. Some of the officials acknowledged that economy had softened more than they had anticipated.

The Dow Jones industrial average ended with a gain of 5 points, having been up 64 following a reading on consumer confidence in August that came in stronger than expected. Stocks fell sharply for much of August after a series of reports suggested that the recovery has weakened.

For the Dow, this was the worst August performance in point loss and percentage loss since 2001 when it fell 573.06 points, or -5.45 percent. It was the first "down" August in five years and the second in eight years.

The S&P 500, the measure used most by stock market professionals, finished August with a loss of 4.7 percent. It was the S&P 500's worst showing for the month since August 2001, when it lost 6.4 percent as the dot-com bubble collapsed. Year-to-date, the S&P 500 is down 5.9 percent.

Some traders said there was disappointment that the Fed wasn't pessimistic enough to consider quicker steps to stimulate that economy.

Dan Cook, senior market analyst with the brokerage firm IG Markets, said the minutes gave a picture of a cautious and conservative Fed. While officials acknowledged the economy's problems, they chose to take only small, initial steps. Traders who have hoped the Fed would be more aggressive to stimulate the economy soon aren't so sure now that the central bank will act.

"People are thinking maybe we need more of a downturn before the Fed will jump in," Cook said. Unlike traders, he said, "the Fed moves like a glacier."

The Dow rose 4.99, or 0.05 percent, to close at 10,014.72.

Broader indexes were mixed. The Standard & Poor's 500 index edged up 0.41, or 0.04 percent, to 1,049.33. The Nasdaq composite index fell 5.94, or 0.3 percent, to 2,114.03.

Other market indicators also had dismal performances in August, having surged ahead in July on a series of strong earnings reports. The Dow lost 4.3 percent in August, while the Nasdaq lost 6.2 percent.

Rising stocks outpaced falling ones by about 4 to 3 on the New York Stock Exchange, where consolidated volume was low at 4.5 billion shares.

Volume has been very light in recent days, which can exaggerate movements in the market.

"The low volume (is a sign) there's not a lot of belief on either side," said John Merrill, chief investment officer at Tanglewood Wealth Management. The market "is treading water as people are looking for a discernible trend."

Treasury prices rose, sending their yields lower, as cautious investors put money back into bonds. The yield on the 10-year Treasury note, which helps set interest rates on mortgages and other kinds of loans, fell to 2.47 percent from 2.53 percent late Monday.

A weaker reading on manufacturing activity in the Midwest Tuesday was the latest report to follow the negative trend. The drop in the Chicago Purchasing Managers Index was similar to declines seen in other regional manufacturing reports earlier this month.

Some investors worry that the signals of weakness in the economy emerging recent weeks could suggest a slowdown throughout the second half of the year and possibly even a dip back into recession.

Joseph Battipaglia, market strategist at Stifel Nicolaus & Co., said the drop in August matters less than what caused it: signs that economic growth is slowing, or worse.

"The evidence suggests we're going into a recession," he said. "The S&P has held nicely north of 1,000 but we'll break through it."

Overseas, Japanese stocks were hammered as the yen hovers near a 15-year high against the dollar. Many Japanese companies like Sony, Panasonic and Toyota rely heavily on exports, so a stronger yen cuts into their profits. Japan's Nikkei stock average tumbled to a 16-month low, falling 3.6 percent.