Dow Closes Below 10,000

Stocks give up gains late, despite earlier finding solace in durable goods orders and new-home sales rising. Alix Steel has The Real Story.

Author:: Melinda Peer
Publish date:: May 26, 2010 5:47 PM EDT

NEW YORK (

TheStreet

) -- U.S. stocks took a sharp downward turn late Wednesday and finished solidly in the red, while the

Dow

closed below 10,000 for the first time since early February. The down day came despite some improving economic signals.

The

Dow Jones Industrial Average

shed 69 points, or 0.7%, to finish at 9,974. The move lower came after as much as a 90-point gain earlier in the day, emblematic of the mercurial swings that have dominated recent sessions just before the closing bell. The

S&P 500

also lost 6 points, or 0.6%, to 1068, and the

Nasdaq

fell behind by 15 points, or 0.7%, at 2196.

Overseas, Hong Kong's Hang Seng rose 1.1%, and Japan's Nikkei inched 0.6% higher on Wednesday. The FTSE in London gained 2%, and the DAX in Frankfurt added 1.6%.

"We don't have trends anymore -- what we have is enormous volatility," said George Feiger, chief executive of Contango Capital Advisors. "If you look at the valuation of U.S. stocks, they are more or less at fair value. So there are no trends, they're just oscillating a lot. In other words, I don't think the stock market is going anywhere. The economy is recovering gradually and there's nothing that can be done to speed it up."

Feiger advises investors to plan for volatility.

"There's a lot to invest in, but not a lot of stability. If you know you're going to need liquidity in the next few years, then put your money in something short-duration and of high credit quality," he said.

Some news reports attributed the late-session pitch to more euro jitters. Chinese officials are taking a fresh look at the country's euro bond holdings, according to a story from the

Financial Times

, in light of the sovereign debt uncertainty roiling Europe and markets around the globe.

While Quincy Krosby, chief market strategist at Prudential Financial, said the report may have been one of several contributions to the market dip, she also said the late move was more typical of "selling into strength heading into the long weekend," with so many questions left unanswered about geopolitical and global events.

"It's still a market that's going to take any news and look at it through a prism of negativity," she added, speaking about the market's fragility.

>>The Economy

>>Company News

>>Commodities and the Dollar

>>Treasuries

The Economy

Earlier, the Organization for Economic Cooperation and Development noted marked improvement to the

global economic outlook since its last forecast but warned that financial instability isn't yet a thing of the past and that austerity measures are crucial to preserving the recovery. The OECD raised its economic forecasts for Japan, the U.S. and the eurozone countries, but said Japan and the U.S. are expected to outpace Europe.

The Department of Commerce said

durable goods orders rose 2.9% in April, exceeding the increase of 1.4% that economists had been expecting. Excluding transportation, orders fell 0.1%, which misses expectations for growth of 0.7%.

New-home sales jumped 14.8% to 504,000 in April as buyers scrambled to take advantage of tax credits. April's figure exceeded economists' expectations for 425,000 and rose from 439,000 in March.

The Mortgage Bankers Association's market composite index showed that

mortgage loan application volume rose by a seasonally adjusted 11.3% last week. Refinancing applications, meanwhile, soared 17% week over week.

PNC Chief Economist Stuart Hoffman said U.S. economic data released in May has been promising with new- and existing-home sales benefiting from buyers looking to take advantage of an expiring tax credit, and manufacturing data continuing to show signs of a strengthening recovery as a jump in commercial aircraft orders lifted April durable goods orders. News about the consumer has also been encouraging.

"The Conference Board's Consumer Confidence Index increased for the third straight month in May, to 63.3. Adverse news from financial markets may end the improvement in June," Hoffman said. "However, lower gasoline prices and improved hiring may counterbalance the bad news from the stock market."

The morning after the American Petroleum Institute said crude oil inventories rose by 616,000 barrels in the week ended May 21, the Energy Information Administration reported an increase of 2.4 million barrels, which was larger than the build of 100,000 barrels that analysts polled by Platts had been expecting. Meanwhile, gasoline and distillates supplies fell, by 200,000 barrels and 300,000 barrels, respectively. Analysts had been projecting gains of 150,000 barrels and 200,000 barrels, respectively, according to the Platts survey.

>>Overview

>>Company News

>>Commodities and the Dollar

>>Treasuries

Company News

The capital goods sector was showing the strongest gains of the session, and

Walt Disney

(DIS) - Get Report

Merck

(MRK) - Get Report

Caterpillar

(CAT) - Get Report

and

Boeing

(BA) - Get Report

were leaders on the Dow, though

Microsoft

(MSFT) - Get Report

was the principle drag on the blue-chip average.

Disney was in the headlines today after federal officials arrested an employee for allegedly attempting to sell inside information. The employee, who worked as a secretary to a Disney executive and her boyfriend were caught in an FBI sting, where federal agents posed as hedge fund traders tried to buy advance earnings news from the pair ahead of Disney's quarterly release in May, according to

The Associated Press

On the

New York Stock Exchange

Xerium Technologies

(XRM)

Dycom Industries

(DY) - Get Report

and

Doral Financial

(DRL)

showed the strongest performance. On the other end,

American Eagle Outfitters

(AEO) - Get Report

trailed the most.

Shares of

Diana Shipping

(DSX) - Get Report

gained 0.8% as the shipping transportation services company topped analysts' estimates with a first quarter profit of 36 cents a share.

Toll Brothers

(TOL) - Get Report

narrowed its loss in the second quarter to 24 cents a share and said values of net contracts signed during the quarter jumped 56% year over year. The stock climbed 0.8%.

Shares of

MGM Mirage

(MGM) - Get Report

lost 2% after being removed from Goldman Sachs' conviction buy list. Goldman citied macroeconomic uncertainty but maintained its buy rating on the stock since it expects MGM to profit from an eventual turnaround in the Las Vegas market.

The Justice Department is taking a closer look at

Apple's

(AAPL) - Get Report

strategies in the digital music market, according to a

New York Times

report. The stock ended 0.5% lower after trading in positive territory for much of the day.

Late in the day,

The Wall Street Journal

reported that the bankruptcy estate for

Lehman Brothers

brought a lawsuit against

JPMorgan Chase

(JPM) - Get Report

, claiming that JPMorgan stripped Lehman of billions in its waning days using insider knowledge of Lehman's dire financial straits in its collateral calls.

>>Overview

>>The Economy

>>Commodities and the Dollar

>>Treasuries