Investors hesitate to make any big bets
NEW YORK » Wall Street ended a volatile session mixed yesterday as investors wrestled with a troubling outlook for bond insurers, a $9.4 billion writedown at Morgan Stanley and a weakening economy that many believe is headed for recession.
Not all of yesterday's news was bad.
Morgan Stanley managed to get a $5 billion investment from a Chinese sovereign wealth fund, and the Federal Reserve said its Monday auction of $20 billion in 28-day credit was met with solid demand -- signs that there is cash out there to help the struggling banking industry recover.
But with only six trading days left in 2007 and little data to convince Wall Street that the economy is on the upswing, investors hesitated to make any big bets on stocks.
"The sign that the selling is over is when bad news doesn't make stocks go down anymore," said Matt Kelmon, portfolio manager of the Kelmoore Strategy Funds.
The stock market lifted in early trading but gave back gains after Standard & Poor's lowered its outlook for bond insurers, suggesting that the ratings on the bonds the companies insure may be headed lower.
S&P slashed the credit rating of ACA Financial Guaranty Corp., and put Financial Guaranty Insurance Co., another bond insurer, on watch for a downgrade.
The agency maintained the ratings on Ambac Financial Group Inc., MBIA Insurance Corp. and XL Capital Assurance Inc., but gave the bond insurers negative outlooks -- meaning there is a one-third chance of a ratings cut for those companies in the next two years.
The Dow Jones industrial average fell 25.20, or 0.19 percent, to 13,207.27.
The Standard & Poor's 500 index fell 1.98, or 0.14 percent, to 1,453.00, but the Nasdaq composite index added 4.98, or 0.19 percent, to 2,601.01. The Russell 2000 index of smaller companies rose 2.07, or 0.27 percent, to 756.13.
Declining issues outnumbered advancers by about 9 to 7 on the New York Stock Exchange, where volume came to 1.35 billion shares, compared with 1.49 billion shares traded Tuesday.
Treasury bond prices rose on S&P's outlook for bond insurers, as investors sought the safety of government securities.
The yield on the 10-year Treasury note, which moves opposite the price, fell to 4.03 percent from 4.12 percent late Tuesday.
The dollar rose against most other major currencies. Gold prices rose.
Light, sweet crude futures gained $1.16 to settle at $91.24 a barrel on the New York Mercantile Exchange after the U.S. Energy Department said U.S. inventories of crude and heating oil dropped last week while gasoline stockpiles rose.
Morgan Stanley rose $2.01, or 4.2 percent, to $50.08 after announcing the $5 billion China investment yesterday.
The deal represents China's largest minority stake purchase in a U.S. company, said Thomson Financial analyst Richard J. Peterson.
Recently, Citigroup Inc. sold $7.5 billion worth of shares to the Abu Dhabi Investment Authority.