After marching along the comeback trail Wednesday afternoon, stock proxies once again found themselves far below break-even midday Thursday. There were some fundamental reasons for the decline, but traders also were overlooking some positive developments, which is a marked change from recent trends. As of 1:39 p.m EST, the Dow Jones Industrial Average was down 1.1% to 8639.81, the S&P 500 was lower by 1% to 908.74, while the Nasdaq Composite was off 0.9% to 1418.01. Issues weighing on shares included lackluster November retail sales, cautious comments from Gateway ( GTW), and heightened prospects for a bankruptcy filing by UAL ( UAL) after the Air Transportation Stabilization Board rejected its application for a $1.8 billion federal loan guarantee. Gateway was lately down 15.8% and UAL was off 69.6% before being halted. Additionally, there are worries about Intel's ( INTC) midquarter update after the close, Friday's employment report, as well as the approaching deadline for Iraqi compliance. However, the declines also came amid some positive news developments, including a larger-than-expected, 50-basis-point rate cut from the European Central Bank, another drop in weekly jobless claims, and some upbeat comments from Advanced Micro Devices ( AMD). A few weeks ago, such a combination of news would have sent shares skyward, particularly those of the chip and related groups. AMD lately was up 4.7%, but the Philadelphia Stock Exchange Semiconductor Index was down 0.4%, further evidence that the worm -- and the mood -- on Wall Street have turned to the negative, at least for the time being. Heading toward the close, it will be critical to see whether the S&P can recover above support at around 910, as was the case
Wednesday , or whether selling will accelerate and take the index to a test of even more critical support at 900. Thus far, the index has traded as low as 905.90.
As the losses mount -- this would be five straight for major averages -- concerns are rising that the post-Oct. 9 rally is over and that December will not live up to its historic performance as one of the market's best months. "Any hiatus in forward momentum, as seems to be occurring as we enter the December period, may be met with some well-deserved profit-taking, if not outright selling," observed Louise Yamada, director of technical research at Salomon Smith Barney. "Our approach has been, and remains, to raise stop-loss levels to lock in gains, and to maintain a risk-averse discipline in the event the rallies evaporate." Yamada's caution stems, in part, from an observation that "there has not been an impressive volume day since Nov. 21; in other words, no follow-through." On the other hand, there has yet to be a session of expanding volume on the downside either, and activity was modest again midday Thursday. Of late, 807 million shares had been traded on the New York Stock Exchange and 994 million shares in Nasdaq activity.
With its first rate cut since November 2001, the ECB lowered its target rate to 2.75%, and has now cut rates four times since the beginning of 2001. The Federal Reserve has cut rates 12 times in the same time frame to its current level of 1.25%. One apparent beneficiary of the ECB's rate cut was gold, which some see as a proxy for investors' perception of central banks. The price of gold was lately up 0.8% to $325.60. Crude futures also were higher after a tanker captain joined a strike against Venezuelan President Hugo Chavez, Crude futures were lately up 2.4% to $27.34.