Wall Street sheds all its early gains

Traders continue to fear that economy will continue to face challenges despite rescue plan

After starting the day on a strong note, US stocks slipped in the red following the lunch hours and finally ended in the red on Tuesday, 14 October, 2008. Though the Dow had surged up by more than 400 points in first couple of hours of trading, it gave up a part of its gains during the noon hours. Weakness in retail and technology stocks was the main reasons for the market to trade in this manner.

The Dow Jones Industrial Average ended the day down by 76 points, to 9,310. The Nasdaq Composite Index, finished lower by 65 points at 1,779. S&P 500 finished lower by 5 points at 998.

Twenty one out of thirty Dow components ended in the red. Microsoft, Intel and Coco Cola were the main Dow laggards. Citibank and Bank of America were two main Dow winners today surging by 16% and 18% respectively. Johnson and Johnson was another Dow winner soaring by 2% after the company’s earnings beat estimates.

The buying interest at the open came as credit markets showed signs of some improvement and the U.S. government followed European efforts to improve the financial system.

Ahead of the open on Wall Street, Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke discussed the government's bank rescue plan, offering reassurances that it would work.

As per the plan announced today, the Treasury will buy up to $250 billion in preferred stock from qualifying U.S. financial institutions. Participation in the plan is voluntary, although it appears that there will be plenty of firms taking the Treasury up on its offer. Nine of the largest financial institutions in the world will receive $125 billion, including Bank of America, Citigroup, JPMorgan Chase, Morgan Stanley and Wells Fargo. To participate in the program, firms will have to agree to executive compensation limits, including the elimination of golden parachutes.

In addition to that, the FDIC will guarantee the newly issued unsecured debt from banks through 30 June, 2012. Meaning that if a bank fails, holders of newly issued debt will be paid by the FDIC. This includes interbank lending, which has seized up as banks hoarded cash. Separately, noninterest bearing deposit accounts will now be fully guaranteed, up from the current limit of $250,000, until the end of 2009.

With these plans, the financial stocks soared today trying to give the market the most needed support.

Among earning news, Johnson & Johnson posted third quarter earnings growth that topped estimates and raised its full year outlook.

Nasdaq spent the entire day in the red today. The Intel share shed 6.2% ahead of its earning report which was slated after today’s close.

Volume on the New York Stock Exchange neared 1.9 billion, with advancing stocks trumping decliners by a 17-to-14 margin. On the Nasdaq, 1.3 billion shares changed hands, as decliners edged ahead of advancers, roughly 3 to 2.

Crude prices slipped today below the $80 mark. The expectations among investors were left largely intact that the financial crisis will hasten a decline in consumption of oil. Crude-oil futures for light sweet crude for December delivery closed at $78.63/barrel (lower by $2.56 or 3.2%) on the New York Mercantile Exchange. On a yearly basis, crude price is higher by 6.5%.

Coca-Cola and JPMorgan Chase are among major companies for tomorrow morning's earnings announcements. Other than that, the September Producer Price Index is due ahead of Wednesday's opening bell. Advance retail sales are due at the same time. Business inventories for August and Fed's Beige Book are to follow them.