Investors worry that stocks are overbought
NEW YORK » Wall Street was mixed in an erratic session yesterday after a flurry of merger news failed to erase investors' concerns that a recent run-up has left stocks overbought.
Yesterday's merger agreements, including a deal by Freeport-McMoRan Copper & Gold Inc. to acquire Phelps Dodge Corp. for $26 billion, totaled more than $50 billion in activity. While the deals indicate companies are optimistic about the future, investors appear unconvinced about the health of the economy and were more cautious than usual given the spate of merger announcements.
The buyout news battled with a sense that stocks were due for a pullback after the major indexes rose more than 1 percent last week.
Matthew Smith, vice president and portfolio manager at Smith Affiliated Capital, contends investors could be wary of sending stocks much higher and in many cases will simply try to hold their gains until the end of the year.
"I just don't think right now it's warranted to take more risk on given the moves we've had. We might see trending sideways," he said.
The Dow Jones industrial average was down 26.02, or 0.21 percent, at 12,316.54. Earlier in the session the Dow hit another trading high of 12,355.23.
Broader stock indicators were narrowly mixed. The Standard & Poor's 500 index closed down 0.70, or 0.05 percent, at 1,400.50, and the technology-heavy Nasdaq composite index rose 6.86, or 0.28 percent, to 2,452.72.
Advancing issues barely outnumbered decliners on the New York Stock Exchange, where consolidated volume came to 2.56 billion shares compared with 2.72 billion traded Friday.
The Russell 2000 index of smaller companies rose 2.15, or 0.27 percent, to 790.62.
Bonds rose, with the yield on the benchmark 10-year Treasury note falling to 4.60 percent from 4.61 percent late Friday.
The dollar was mixed against other major currencies, while gold prices fell.
Light, sweet crude fell 17 cents to $58.80 a barrel on the New York Mercantile Exchange.
An overall drop in oil prices has helped lift investor sentiment about the ability of the economy to pull off a soft landing.
That notion helped the Dow achieve four straight record closes last week and helped push the S&P to close at a six-year high Friday.
Readings last week showed that a drop in oil prices last month helped hold back inflation. If inflation can be neutralized, the Federal Reserve would be more likely to eventually lower short-term interest rates.
The central bank has left rates unchanged at its last three meetings after a string of 17 straight advances.