Stocks stabilized somewhat Tuesday after Monday's massive slide, although an early rally sputtered and key indexes fell further.
The technology-heavy Nasdaq composite index sank 24.47 points, or 1.6%, to 1,555.08 and the Standard & Poor's 500 index fell 6.03 points, or 0.7%, to 1,032.74.
But the Dow Jones industrial average held up better, losing 17.30 points, or just 0.2%, to 8,903.40, on the heels of Monday's 684-point drop. That plunge--the biggest one-day point loss ever for the Dow--came on the first day of trading since the Sept. 11 terrorist attacks.
Meanwhile, a report Tuesday offered a clue as to how individual investors may have reacted to the terrorist attacks: Monday's transfer activity among 401(k) participants was by far the highest in at least four years, according to the Chicago consulting firm Hewitt Associates.
Volume on Wall Street was fairly heavy Tuesday, but well below Monday's record levels. Many traders were absent because of the Rosh Hashana holiday. Losers swamped winners by 23 to 14 on Nasdaq and by 19 to 12 on the New York Stock Exchange.
Blue-chip names clipped the S&P 500 and the Dow, including American Express, which sank $2.87 to a three-year low of $27.38 after issuing a third-quarter profit warning; General Electric, which lost $1.30 to $33.85; and Boeing, off $2.66 to $33.14.
Defense stocks were mixed, while airline shares bounced back a bit amid bargain-hunting. Stocks were hurt in part by a surge in bond yields after last week's dive amid a so-called flight to safety.
"The stock market's pattern the past two days has been kind of disappointing, no doubt," said Carl Domino, manager of the Northern Large Cap Value Fund in Chicago, noting the acceleration of selling late Monday and Tuesday's faltering rally. "We just have to see how everything works out--whether there's a general war, other terrorist attacks, and how weak the economy gets."
Whether or not the market falls further in the near term, he said, he remains upbeat longer-term.
"My guess is that we get to the other side of this sooner and sharper because of all the stimulation to the economy from the Federal Reserve, insurance payouts and congressional spending on rebuilding and the military," Domino said. After cutting interest rates the day before, the Fed continued to pour liquidity into the U.S. financial system Tuesday, he noted.
In addition, "from a contrarian perspective, a number of pieces are coming into place," said Chip Hanlon, president of Unfunds Inc., a Huntington Beach investment firm. He pointed to a recent surge in bearishness among market newsletter editors and high trading volatility the last two days. Rising bearishness among investment advisors is considered by some an indication that the market is hitting bottom.
Last week's survey by Investors Intelligence newsletter, taken before the terrorist attacks, showed 39% of market newsletter editors bullish and 36% bearish, with the rest neutral. Bearishness, which typically lags significantly below bullishness, has risen since hitting a recent low of 23% on July 20--when the Dow was about 1,600 points higher--said Michael Burke, editor of New Rochelle, N.Y.-based Investors Intelligence.
The next survey, due out today, could show more bears than bulls, a rarity that often marks a market bottom, Burke said.
Hanlon noted that bulls remained stubbornly optimistic for a year and a half even as markets slid, "but they have shown signs of cracking" in the past month.
In its 401(k) report, Hewitt said transfer activity in its 401(k) retirement plans represented $400 million, or a record 0.6% of assets--nearly 10 times the amount shifted between funds on an average day and double the previous high since the firm started its survey in August 1997. Investors generally moved money out of stock funds and into more conservative fixed-income choices, Hewitt said.
"We've noted in the past year that 401(k) participants' reaction to the bear market has best been characterized as 'hands off'--that changed on Monday," Hewitt consultant Lori Lucas said. She called the activity flurry surprising even in light of "pent-up demand" caused by the market's four-day closure.
Hewitt noted, however, that call volume to 401(k) sponsors was only slightly higher than normal Monday--indicating that much of the transfer activity was concentrated in only a handful of accounts.
In other markets, the yield on the benchmark 10-year Treasury note soared to 4.70% from 4.62% as investors fretted about a flood of new federal debt issuance. The dollar continued to lose ground against the euro and the yen.
Foreign markets were mixed Tuesday. Japan's Nikkei-225 index rose 1.9% while Bloomberg's 500-stock European index fell 0.9%.
Among other market highlights:
* Airline stocks recovered some ground after Monday's huge sell-off. American Airlines parent AMR rose $2 to $20, and United Airlines parent UAL rose $1.49 to $18.99.