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Profit-taking costs market
NEW YORK >> Stocks took a break from their big rally yesterday, dropping sharply as investors, wary that prices have climbed too high, too quickly, cashed in some of their profits.
"I am glad to see a pause in here. The last thing we need is for the market to get ahead of itself," said Joseph Keating, chief investment officer at AmSouth Asset Management in Birmingham, Ala.
Freddie Mac's dismissal of its president and chief operating officer and an earnings warning from Motorola contributed to the decline. Still, analysts said investors remain confident that the market and the economy have turned a corner.
Declining issues outnumbered advancers more than 2 to 1 on the New York Stock Exchange. Consolidated volume was light at 1.68 billion shares, down from 2.96 billion on Friday, which was one of the heaviest trading days of the year.
The Dow Jones industrial average closed down 82.79, or 0.9 percent, at 8,980.00, coming down from a stunning week in which it closed above 9,000 for the first time in nearly 10 months and ended with a 2.4 percent gain.
The broader market also retreated. Having advanced 2 percent last week, the Nasdaq composite index fell 23.45, or 1.4 percent, to 1,603.97. The Nasdaq is trading at levels not seen since May, 2002. The Standard & Poor's 500 index declined 11.83, or 1.2 percent, to 975.93, following its own stellar week in which it traded above 1,000 for the first time in almost a year and gained 2.5 percent. The S&P is at levels not seen since July. The Russell 2000 index fell 9.15, or 2 percent, to 444.79.
The price of the Treasury's 10-year note closed up 11/16 point, while its yield fell to 3.27 percent from 3.35 percent Friday. Two-year Treasury notes were up 1/8 point and yielded 1.18 percent, down from 1.24 percent Friday.
Analysts said the market was due for some natural pullback following weeks of heavy buying.
"It came too far, too fast," said Hugh Johnson, chief investment officer at First Albany Corp.
Plenty of positive factors have been contributing to the market's upward momentum.
Most companies reported better-than-expected first-quarter earnings, the war in Iraq was quick and economic data has been strengthening. Federal Reserve Chairman Alan Greenspan has made several upbeat assessments of the economy lately and President Bush signed into law a 10-year, $350 billion tax cut package, which includes lower rates on stock dividends.
But Financial stocks yesterday turned lower on news that mortgage lender Freddie Mac's president and COO, David Glenn, was fired because of questions involving his cooperation with the board of director's audit committee counsel.
Freddie Mac dropped $9.61, or 16.1 percent, to $50.26. Other financial issues suffered, including Fannie Mae, which slid $3.63 to $71.31, and Countrywide Financial, which fell $1.49 to $74.58.
Among other losers, Motorola declined 21 cents to $8.68 after cutting its quarterly and annual sales and earnings estimates.
Brokerage house downgrades hurt other individual stocks.
Check Point Software fell 95 cents to $19.23 after Credit Suisse First Boston lowered its rating to "underperform" from "neutral."
Extreme Networks declined 55 cents to $6.10 after RBC Capital Markets downgraded it to "underperform" from "sector perform."
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