It was a quiet start after Friday’s upswing, which pushed the Dow Jones industrial average and the Nasdaq indexes above their levels from the start of the year. The broader market, as measured by the Standard Poor’s 500-stock index, rallied nearly 6 percent last week.
By the end of Monday, though, the three indexes foundered with declines of about 2 percent. The Dow and the Nasdaq were once again down for the year, and the S. P. pressed deeper into negative territory for the year. Analysts noted that some of the drivers of market sentiment in recent weeks — including economic data and the prospect for some form of decisive action in Europe — were uninspiring. Stocks that traded in the sectors most vulnerable to economic stress took hits, with industrials, materials and financials more than 2 percent lower near the end of the trading session on Monday.
But they also attributed the declines on Monday to technical reasons, as important levels in the indexes proved resistant to breakthrough.
“The market was heavily oversold,” said Quincy Krosby, a market strategist for Prudential Financial. “Whenever that happens you are due for a bounce. It moved up too far, too fast.”
Ms. Krosby added that last week’s gains were not accompanied by strong volumes, which suggested that the rally was not solid enough to extend the gains.
“It means that new buyers are not coming in,” she said. “The conviction is not there. Volume is always the conviction of the bulls.”
The gains from last week, which were in part helped by improved retail data in the United States, happened just ahead of a meeting of finance ministers from the Group of 20. Analysts had said that they believed fear about Europe’s debt crisis had faded somewhat in the last few days.
But on Monday, Germany sought to play down expectations of a decisive breakthrough at another meeting of European leaders scheduled for this weekend.
At a news conference, Steffen Seibert, a spokesman for Chancellor Angela Merkel of Germany, said that “these are important working steps on a long path. This is a path that with certainty runs far into next year and also additional working steps will have to follow.”
Ms. Krosby said: “Part of the reason the market was able to move up was on the hopes and prayers that the Europeans would craft a credible plan in time for the meeting. They just threw cold water on that.”
The comments helped push up bond prices in the United States. The Treasury’s 10-year note rose 27/32, to 99 24/32. The yield fell to 2.16 percent, from 2.25 percent late Friday.
The Dow Jones industrial average was down 2.13 percent at 11,397.00. The S. P. 500-stock index was 1.9 percent lower, or down 23.72 points, at 1,200.86. The Nasdaq composite index was down 1.98 percent, to 2,614.92.
The benchmark Euro Stoxx 50 closed down 1.68 percent.
“Optimism is fading,” said Frank M. Pavilonis, MF Global’s senior market strategist, referring to Europe.
Economic data from the United States on regional manufacturing and another report on industrial production were weak, or “market neutral,” said Jonathan E. Lewis at Samson Capital Advisors.
“We are really operating in a twilight zone for markets,” Mr. Lewis said, referring to what he described as a lack of clarity from the economic data and the euro zone situation.
In the United States, economic data has been mixed.
On Monday, a report from the Federal Reserve Bank of New York on regional manufacturing showed no improvement in its index for overall business conditions in October. In a research note, economists from Goldman Sachs said the report suggested “generally downbeat” views of the current economic situation, but noted that some components of the index had stabilized.
Industrial production as reported by the Federal Reserve showed a month-on-month 0.2 percent rise for September, just as analysts had forecast. Manufacturing production firmed 0.4 percent in that period, which economists said reflected some recovery from the disruptions related to the Middle East turmoil and the earthquake in Japan earlier in the year.
“With a mixed performance in September, the U.S. manufacturing sector now seems to have fully recovered from the supply chain shocks caused by the Japanese tsunami,” Cliff Waldman, economist for the Manufacturers Alliance, said in a statement.
Analysts said that as financial results trickled in, stocks would continue to weather the outlook for the United States economy. Financial stocks were hardest hit, falling about 3.3 percent as a sector, on a day when more banks weighed in with quarterly results.
Wells Fargo, the largest consumer lender in the United States, was down 8.4 percent at $24.42. It reported Monday that its third-quarter earnings rose 21 percent, even as a drop in revenue indicated a disappointing sign for the bank.
Citigroup announced a profit of $3.8 billion, or $1.23 a share, beating analyst consensus estimates of 81 cents a share. It fell 1.7 percent, to $27.93.
Shares in companies in the materials sector declined 3 percent, with Alcoa down 6.6 percent, to $9.58, and U.S. Steel more than 6 percent at $22.98.
Eric Dash, Ben Protess, Stephen Castle and Liz Alderman contributed reporting.
Article source: http://www.nytimes.com/2011/10/18/business/daily-stock-market-activity.html?partner=rss&emc=rss
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