Stock Market News for September 2, 2009

A pair of positive economic news failed to lift sentiments on the Street as mounting worries that the six-month old rally has gone ahead of the economic recovery led to a nervous selling and all major indexes closed sharply lower.  That September has historically been a rough month for stocks is also a factor why investors appear disinclined to jump into the fray and many say a break in the six-month old rally is on the cards.

On Tuesday, the Dow Jones industrial average, after gaining over sixty points in the morning, nose-dived 185.68 points, or 2%, to 9,310.60.  Since Friday, the index has lost 270 points, or 2.8%.  The S&P 500 fell 22.58, or 2.2%, to 998.04, while the Nasdaq composite index fell 40.17, or 2%, to 1,968.89.  Treasuries, which usually benefit from a fall in stocks, could garner only moderate gains.  Volume picked up on the NYSE where 1.63 billion shares exchanged hands as declining stocks beat those that advanced five to one.  The market’s measure of volatility, the CBOE Vix, shot up 12.1% to 29.2.  

The decline in stocks was broad based as all but one DJIA component ended in the red.  Only Wal-Mart (NYSE:WMT - Snapshot Report) showed some resistance, edging up 0.2%.  Financial stocks took a beating, hurt by analyst comments and rumors of a bank failure.  Leading the Dow average lower was Bank of America (NYSE:BAC - Analyst Report), which slipped 6.4% to $16.46.  American Express (NYSE:AXP - Analyst Report) slid 5.4% to $31.98 while another Dow component JP Morgan Chase (NYSE:JPM - Analyst Report) retreated 4.1% to $41.67.  Citigroup (NYSE:C - Analyst Report), though not in the Dow average, was another notable loser as its shares lost 9.2% to $4.54.   

A Sanford Bernstein downgrade sent shares of AIG (NYSE:AIG - Snapshot Report) down 20.6%.  The plunge wiped off much of the recent gains in AIG stocks.  Fannie Mae (NYSE:FNM - Snapshot Report) and Freddie Mac (NYSE:FRE - Analyst Report) lost 17.6% and 17.0%, respectively, as traders decided to book profits after the recent advance in the shares. Wells Fargo (NYSE:WFC - Analyst Report) shares dropped 4.8% even as the company announced plans to repay government bailout funds "shortly," without selling shares; the firm received $25 billion in TARP funds.  E*Trade Financial Corp. (NASDAQ:ETFC - Snapshot Report) slid 15% to $1.50.

This afternoon’s release of the FOMC minutes could be of interest, as investors weigh its wording for recovery and growth expectations, as well as sign posts of exit strategy plans.