Tuesday, August 16, 2011

Investors fretted Tuesday because European leaders
made no immediate moves to strengthen the eurozone's finances.
Richard Drew - AP
NEW YORK Worries about Europe's economic and debt problems Tuesday sent stocks to their first loss in four days.

The major indexes bounced up and down in another volatile day. The Dow Jones industrial average fell more than 120 points in the first half-hour of trading after a report showed that Germany's economy stalled last quarter and dragged down growth for Europe.

The Dow pared most of its losses by noon but resumed its drop after the leaders of France and Germany tried to calm worries about Europe's debt problems by pushing for long-term political solutions. Investors were hoping for immediate financial measures such as the introduction of a single bond jointly backed by the eurozone's members. The Dow fell as many as 190 points in the early afternoon before again recovering.

At the close, the Dow was down 76.97, or 0.7 percent, to 11,405.93. It was the first time in seven trading days that the Dow rose or fell by less than 100 points. The Standard & Poor's 500 fell 11.73, or 1 percent, to 1,192.76. The Nasdaq fell 31.75, or 1.2 percent, to 2,523.45.

"The real question the market is trying to answer is: Are we going to have another recession or not?" said John Burke, head of Burke Financial Strategies with $200 million in assets under management. "Today, the answer is maybe yes, because it doesn't look like Europe has figured out a solution to its debt."

In the U.S., economic reports on Tuesday were mixed. Housing remains weak, but factory output rose last month at its fastest pace since an earthquake in Japan disrupted global manufacturing in March.

"Investors don't know which way to go here," said Paul Brigandi, senior vice president of Direxion Funds, which has about $7 billion in assets under management.

On one side, he said, buying looks attractive because stocks are cheaper after the S&P 500's 10.4 percent drop from July 21 to Monday. And more U.S. companies on Tuesday joined the stream of those that have reported earnings above analysts' expectations. But on the other side, selling looks appealing because of worries about the global economy and debt problems in both the United States and Europe.

Prices for gold and Treasury bonds rose as money moved into investments considered safer. Gold rose $27 per ounce to settle at $1,785. Oil fell $1.23 per barrel to settle at $86.65 on worries that a weaker economy will mean less demand for energy.

Investors have largely ignored the strong earnings that companies have reported for the second quarter. Those in the S&P 500 index earned a record amount last quarter on an operating basis, according to S&P senior index analyst Howard Silverblatt.

"When you have these big swings, people completely lose focus on companies and their results," said Tim Holland, portfolio manager of the Aston/Tamro Diversified Equity Fund. "They're paying more attention to the market than the companies that make up the market."

Holland said that not only are companies making more money, they have healthier balance sheets than during the financial crisis of 2008. He has been buying stocks made cheaper by the downturn.

"We like to buy the best when they're depressed," he said.


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