Market Ends Dull Day With a Sigh

Updated from 4:20 p.m. EDT

Stocks in New York closed lower Wednesday as a ho-hum session finally succumbed to a retreat after the prior session's tremendous rally.

The Dow Jones Industrial Average spent time on both sides of the flat line, swinging in a range of 141 points, but in the end gave back 45.44 points, or 0.4%, to 12,608.92. The S&P 500 was off 2.65 points, or 0.2%, to 1367.53, and the Nasdaq fell 1.35 points, or 0.1%, to 2361.40.

"We seem to be in a range-bound market," said Matt King, chief investment officer with Bell Investment Advisors. "I don't think it's going to head too much higher from where it closed yesterday until we get some evidence of economic growth."

Richard Sparks, senior equities analyst with Schaeffer's Investment Research, called the action a "very normal kind of pullback" amid the upward trend over the past couple of weeks. He also was heartened by how mild the drop was, especially considering the size of Tuesday's surge.

Indeed, despite the downbeat finish, breadth was positive for the day. Around 4.26 billion shares changed hands on the New York Stock Exchange, with advancers edging out decliners 5 to 4. Volume totaled 2.05 billion shares on the Nasdaq as winners topped losers 3 to 2.

Of particular interest Wednesday were comments from Fed Chairman Ben Bernanke, who conceded that the economy could shrink during the first half of the year.

"It now appears likely that real gross domestic product will not grow much, if at all, over the first half of 2008 and could even contract slightly," he said in prepared remarks to a congressional committee.

Economists have been forecasting a recession -- let alone a mere contraction -- for months. Still, Peter Cardillo, chief market economist with Avalon Partners, called the statement a "major concession." Regarding the Fed's lateness in jumping on the bandwagon, he said, "I think they're hedging. I think they're trying to stay on the fence: 'it could happen, but it may not happen, so let's not scare the markets.'"

Bernanke added that the economy should pick up in the second half, but he warned that the uncertainty attending that prediction is "quite high and the risks remain to the downside." He also cited rising inflationary concerns, which could mitigate any future interest-rate cut decisions.

As for the Fed's role in attempting to save Bear Stearns (BSC Quote) from collapse last month, Bernanke said news that the bank was near bankruptcy "raised difficult questions of public policy," but that, "given the current exceptional pressures on the global economy and financial system, the damage caused by a default by Bear Stearns could have been severe and extremely difficult to contain."

The central bank had hastily arranged funding for the investment bank through JPMorgan Chase (JPM Quote) but, due to the severity of Bear's liquidity problems, JPMorgan ultimately agreed to buy it at a massive discount. In his testimony, Bernanke said the arrangement didn't amount to a Fed bailout and that the deal would ultimately benefit the economy and the American public.