Wall Street retreated yesterday but managed a partial recovery late in the day, as investors reacted uneasily to comments by the Federal Reserve chairman on the economy and news that two Bear Stearns hedge funds were essentially worthless, The Associated Press reports.
Even without any bad news, a downturn in stocks was expected after the rally that began last week. On Tuesday, the Dow nudged past the 14,000 mark for the first time. With no major catalyst behind the advance, the record run has perhaps been puzzling to market watchers trying to determine whether it has room to build or has run its course.
Investors sold off shares as the Fed chairman, Ben S. Bernanke, speaking before the House Financial Services Committee as part of the central bank’s midyear forecast, said that the economy should strengthen into 2008 and that the risk of inflation remained the Fed’s “predominant” concern. He also said the housing sector might get worse before it gets better and remained a risk to consumer spending and overall economic growth.
Analysts said the testimony offered nothing new, but it still had a cautious tone. The Bernanke comments added to concern over news that the Bear Stearns funds were essentially worthless from bad bets on subprime loans and over reports of lackluster quarterly earnings.
Bear Stearns shares dropped 89 cents, to $139.02.
The Dow fell 53.33 points, or 0.38 percent, to 13,918.22. The blue-chip index was down as much as 134 points during the session; the late-afternoon rebound was not unexpected given the market’s recent volatility.