Stocks Reverse Losses as Commodities End Off Lows

By Tim Paradis | June 8, 2009 | 6:43 PM EDT
New York (AP) - Investors might be worried about the soundness of the market's rally but they're also worried about missing it.
Stocks reversed steep losses in the final hour of trading Monday to end little changed. The Dow Jones Industrial average recovered from a 130-point slide to end up a little more than a point.
The market spent much of the day falling along with commodities prices, but then regained ground as commodities came off their lows. A retreat in metals prices pressured the stocks of companies including aluminum maker Alcoa Inc. and Freeport-McMoRan Copper & Gold Inc. Commodities tend to rise along with investors' belief in an economic recovery, and fall when pessimism sets in.
But volume on the stock market was light, and Stephen Carl, head of equity trading at The Williams Capital Group in New York, said that made the market susceptible to quick changes in direction. With fewer players trading stocks, it takes relatively less action to nudge the market from one direction to another.
"On light volume they're just kind of looking for anything" to move stocks, Carl said.
As Monday's trading wound down and prices were recovering, many investors piled back in. Some financial stocks were among those that recovered as investors waited to see which banks will be allowed to repay government bailout money. The government may issue that list as early as Tuesday.
Traders said the day's jagged motions signal that the market is still trying to determine whether to proceed with a three-month rally that has lifted the Standard & Poor's 500 index 38.8 percent from a 12-year low on March 9.
"There's a growing sense of confusion as to when exactly this decline in the economy will end and what kind of expansion will come on the heels of it," said Joseph Battipaglia, market strategist for the private client group at Stifel Nicolaus & Co.
By day's end, the Dow was up 1.36, or less than 0.1 percent, at 8,764.49. The Standard & Poor's 500 index slipped 0.95, or 0.1 percent, to 939.14, and the Nasdaq composite index fell 7.02, or 0.4 percent, to 1,842.40.
Monday marked the arrival of Travelers Cos. and Cisco Systems Inc. in the Dow, replacing Citigroup Inc. and General Motors Corp. Travelers rose 47 cents to $43.92, while Cisco was unchanged at $19.87.
Commodities have been rallying in recent weeks on optimism that a pickup in manufacturing would increase demand for raw materials like copper, silver and oil. But that confidence eroded for much of Monday, making for erratic trading on Wall Street as investors turned against companies whose business is to produce commodities and basic materials.
Commodities also fell as the dollar strengthened. A stronger dollar reduces the appeal of assets like commodities; the dollar's strength in the latter part of 2008 contributed to the collapse in commodities prices.
Alcoa fell 17 cents to $10.77, while Freeport-McMoRan slid 68 cents to $56.48.
Light, sweet crude fell 35 cents to settle at $68.09 per barrel on the New York Mercantile Exchange, while gold for August delivery lost $10.10 to settle at $952.50.
JPMorgan Chase & Co. rose 84 cents, or 2.4 percent, to $35.39, while American Express Co. rose 70 cents, or 2.8 percent, to $25.65.
Bond prices fell. The yield on the 10-year note, a widely used benchmark for home mortgages, rose to 3.89 percent from 3.84 percent late Friday. The yield on the three-month T-bill rose to 0.18 percent from 0.17 percent Friday.
Short-term Treasurys got hit hard for the second day. The yield on the two-year note jumped to 1.42 percent from 1.31 percent Friday. On Thursday, the yield was 0.97 percent.
Investors are betting that the Federal Reserve will have to hike interest rates later this year to counter the inflation that investors fear could accompany the government's huge debt sales. The Treasury has been auctioning off billions of dollars in notes and bonds to finance the government's bailout of banks and other struggling companies.
The Russell 2000 index of smaller companies fell 5.57, or 1.1 percent, to 524.79.
Three stocks fell for every two that rose on the New York Stock Exchange, where consolidated volume came to a light 4.4 billion shares, versus 5.2 billion traded Friday.
Overseas, Britain's FTSE 100 fell 0.8 percent, Germany's DAX index slid 1.4 percent, and France's CAC-40 dropped 1.5 percent. Japan's Nikkei stock average finished with a gain of 1 percent.
Investors might be worried about the soundness of the market's rally but they're also worried about missing it.