Wall Street closed mixed Tuesday, recuperating from a sharp plunge as investors snapped up bargain stocks on rumors that a bond insurer rescue plan is progressing and upbeat comments from Cisco Systems Inc.
Earlier in the session, the market sank after Merrill Lynch lowered its full-year earnings prediction for Citigroup Inc., which a Dubai fund executive said will need to raise more cash to stay in business. Another damper on trading was Intel Corp., which lowered its forecast for first-quarter profit margins.
But in afternoon trading, the stock market showed signs of optimism. The financial sector regained some steam after CNBC reported that a plan to save the bond insurer Ambac Financial is advancing nicely.
Technology stocks rebounded too after a Dow Jones Newswires report that Cisco CEO John Chambers said he is “even more comfortable” with the long-term growth targets the company has outlined.
Wall Street is jittery, however, and as the volatility of the past several months has proved, the market’s optimism can quickly turn to pessimism from one day to the next. While some investors search for bargains when stocks sink, the overall market is plagued by persistent worries about the bad debt held by the world’s banks.
“What we’re seeing is a very nervous market, and nervousness breeds volatility,” said Anthony Conroy, managing director and head trader for BNY ConvergEx Group. “It took years to put this stuff on their books — it’s not going to come off quickly.”
The Dow Jones industrial average fell 45.10, or 0.37 percent, to 12,213.80, after tumbling more than 200 points earlier in the day.
Broader stock indicators finished mixed, also rebounding off their lows of the session. The Standard & Poor’s 500 index fell 4.59, or 0.34 percent, to 1,326.75, while the Nasdaq composite index rose 1.68, or 0.07 percent, to 2,260.28.
Bond prices sank as stocks regained their footing. The yield on the benchmark 10-year Treasury note, which moves opposite its price, rose to 3.63 percent from 3.56 percent late Monday.
Wall Street has been extremely turbulent as it tries to gauge whether the economy is in recession — and whether investors have been too optimistic about corporate profits bouncing back in the second half of the year.
“The soft economy creates a difficult profit environment for most firms. And with investors’ skepticism at high levels, they are quick to sell,” said Alan Gayle, senior investment strategist at Trusco Capital Management.
Citigroup, a Dow component, fell 99 cents, or 4.3 percent, to $22.10, after hitting a new nine-year low. The head of a government-owned investment firm in Dubai said Citigroup would need to raise more than nearly $20 billion it has already nabbed over the past few months to fix its debt problems.
Financial companies are poring over their books to determine what loans remain sound, what debt might be in trouble, and how much all of it is worth. A precipitous slowdown in the housing market last year revealed the fallacy upon which many loans were made — the belief that home prices would continue to rise and that consumers could always wipe away their debts by refinancing.
Now, banks are not only strapped with souring mortgages, but the prospect of big losses from other types of consumer and corporate debt.
Though some banks rebounded on the Ambac rumor, other banks declined alongside Citi, including Dow components Bank of America Corp. and JPMorgan Chase & Co. Bank of America fell $1.05 to $79.62, and JPMorgan fell 63 cents to $39.19.
Ambac rose 78 cents, or 7.9 percent, to $10.72, while MBIA Inc., another bond insurer, rose 36 cents, or 2.9 percent, to $12.98.
After calming words from its CEO, Cisco recovered from its lows to close down 11 cents at $24.29.
Another Nasdaq stock, Amazon.com, shot up $2.91, or 4.7 percent, to $65.34 on comments from its chief financial officer about the online retailer’s 2008 revenue forecast that the market interpreted positively.
Dow component Intel also rebounded, finishing down a penny at $20 a share.
Wall Street is particularly anxious over the technology sector, which was very strong in 2007 and is now one of the weakest in the market along with financials.
“Long term, tech will remain an important sector, but it is a cyclical sector and can be very volatile,” Gayle said. “If there is a belief that our economy — and the global economy — is going to move to a slower pace of growth, then cyclical industries like tech are going to be impacted.”
Light, sweet crude fell $2.93 to settle at $99.52 a barrel on the New York Mercantile Exchange.
Declining issues outnumbered advancers by about 2 to 1 on the New York Stock Exchange. Consolidated volume came to 4.61 billion shares, up from 3.99 billion shares on Monday.
The Russell 2000 index of smaller companies fell 3.24, or 0.47 percent, to 680.98.