By Kate Gibson
U.S. stocks on Wednesday staged a late-session drop after discount giant Wal-Mart Inc. disclosed massive price cuts ahead of the holiday shopping season and an influential bank analyst cut his rating on Wells Fargo & Co.
The sharp move lower in the last 40 minutes of trade, which erased a day of modest gains, dovetailed with calls from analysts saying equities' seven-month climb left the market vulnerable for a fall.
"We've had an extremely long run without even a minor correction, so it was bound to happen. We were approaching some major technical levels that people were worried about," said Doug Roberts, chief investment strategist for Channel Capital Research.
Wal-Mart Inc. (WMT) shares fell 2.1% after announcing hundreds of millions of dollars worth of price cuts for the holiday season. .
"It says something about a $200 billion market capitalized company, especially in the consumer space," said Art Hogan, chief market strategist, Jefferies & Co..
Shares of Wells Fargo fell 5.1% after Rochdale Securities' banking analyst Dick Bove cut his investment rating on Wells Fargo to sell from hold, saying the quality of its earnings was "pretty poor."
The Dow Jones Industrial Average (DJI) ended at 9,949.36, off 92.12 points, or 0.9%. The S&P 500 Index (SPX) fell 9.66 points, or 0.9%, to 1,081.40, while the technology-laden Nasdaq Composite (RIXF) lost 12.74 points, or 0.6%, to 2,150.73.
Materials and consumer discretionary shares paced Wall Street's losses, which had energy shares falling even as crude-oil futures pulled to new 2009 highs .
Hogan also pointed to the very recent disconnect between equities and the commodity market, which could be seen both Tuesday and Wednesday, as troubling to stock investors.
"The reaction to earnings has shifted a bit. The reaction now has shifted to taking profit on the news from buy on the news," said Hogan.
Even analysts who believe the market will continue its climb as the year wraps up said a pullback was due.
"I'm bullish in expecting a consolidation. The advance has been reasonable, but the speed of it versus history has been quick," said Linda Duessel, equity market strategist at Federated Investors.
"By the end of the week or next week at the latest, traders should be looking for a 5% pullback," Marc Pado, U.S. market strategist at Cantor Fitzgerald, wrote in a research note.
For the S&P 500 Index, Duessel cited technical factors indicating the 1,125.00 level will be "a tough number to punch through."
Even so, Federated's near-term target range for the S&P of 1,200 to 1,250 "on a fundamental basis is still very much in place," said Duessel. "We think earnings growth could surprise to the upside, and quite possibly consumer spending," she said.
Based on price levels and historical trends, the S&P 500 is among the indexes around the globe ready for a pullback, said Nicholas Colas, ConvergEx chief market strategist.
And, if one believes the March lows were truly the bottom, "then there is another leg higher to come, most likely later in 2009," Colas said.
In making a bullish case for stocks, Duessel sees particular strength in the technology sector, and points to quarterly results from Yahoo Inc. (YHOO) as reason for cheer. .
New bar being set
Tuesday's session offers a "perfect example of what it takes to move higher from here in this market," said Pado.
In the prior session, the indexes posted modest losses as data on the housing market overshadowed earnings from Caterpillar Inc. (CAT), United Technologies Corp. (UTX) and Pfizer Inc. (PFE), all of which reported results that topped estimates.
"To say that Caterpillar blew away expectations would be an understatement," he wrote.
"Then there was DuPont (DD), just meeting expectations and still sounding more cautious than optimistic. After gaining 17% over the past few weeks, DuPont gave back 2.2% yesterday," the analyst said.