After showing considerable weakness early in the day, stocks ended Wednesday's session with modest declines. Investors waited anxiously for the Senate to vote on a revised bailout package, contributing to some volatility.
While the House failed to pass a $700 billion package that would help to bail out the credit markets, the Senate is expected to vote on a revised bill this evening. An increase in the amount of bank deposits the FDIC insures, along with a renewable energy business tax credit program are among the revisions to the proposed bill.
President George W. Bush said on Wednesday that he is "confident" that a $700 billion financial rescue plan will prevail in Congress. "It's very important for us to pass this piece of legislation so as to stabilize the situation, so that it doesn't get worse," Bush told reporters at the White House.
The president urged members of Congress to take the legislation "very seriously," noting its importance in keeping the credit markets functioning.
In an interview with RTT News, Ken Tower, senior vice president of Quantitative Analysis Service said that we "need to see a bailout plan" to stop the credit contraction from "spiraling deeper."
He said the "big drop" in the market on Monday has "pushed the balance over in favor of voting for the revised bill," but he thinks it will not turn this market around. Tower predicts the bailout will cause a rally, but warns, "then it is on to phase two of the unwinding of credit."
A dismal reading on the manufacturing sector provided further evidence that the bailout bill might be necessary. The Institute for Supply Management said that activity in the manufacturing sector contracted at a much faster than expected pace in September, with the index of activity in the sector falling to its lowest level in almost seven years.
The ISM said its manufacturing index fell to 43.5 in September from 49.9 in August, with a reading below 50 indicating a contraction in the sector. Economists had been expecting a more modest decrease to a reading of about 49.5.
In other economic news, the Commerce Department released its report on construction spending in the month of August on Wednesday, showing that spending was nearly unchanged, as an increase in spending on public construction offset a decrease in spending on private construction.
Separately, Automatic Data Processing, Inc. (ADP) released its report on private sector employment in the month of September, showing that the private sector lost far fewer jobs than economists had been anticipating.
ADP noted that the report does not reflect the impact of a strike by some 37,000 machinists against Boeing (BA) or job losses related to the hurricanes that struck the Gulf Coast. The company said those two factors might have further depressed employment in September.
In other news, major U.S. automakers reported sharply lower U.S. sales for September, as a weakening economy, tight credit conditions and cautious consumer response weighed heavily on the sector. Ford Motor (F) reported a 34 percent decline, while Toyota saw a 32 percent drop. Meanwhile, General Motors (GM) saw a less severe drop, down 16 percent, helped by an employee pricing campaign.
Meanwhile, billionaire investor Warren Buffett's Berkshire Hathaway (BRK) reveled Wednesday that it is investing $3 billion in General Electric (GE), with Buffett expressing optimism that congress will pass a bailout of the financial industry and prevent a more severe economic crisis.
Berkshire Hathaway will acquire $3 billion in GE perpetual preferred stock, which has a dividend of 10 percent and is callable after three years at a 10 percent premium. "Frankly these markets are offering opportunities that weren't available six months or a year ago," Buffett said on CNBC. "So we're putting money to work."
While the major averages pared most of their losses in the afternoon, they still ended the session on the downside, with the Nasdaq underperforming the Dow and the S&P 500. The Nasdaq closed down 22.48 points or 1.1 percent at 2,069.40, the Dow closed down 19.59 points or 0.2 percent at 10,831.07 and the S&P 500 closed down 5.30 points or 0.5 percent at 1,161.06.
Sector News
Resource stocks turned in some of the worst performances, hurt by a drop in commodity prices. Steel stocks were among the biggest decliners, with the Amex Steel Index falling 3.2 percent. The index reversed most of the gain posted in the previous session, although it remains well off of the multi-year closing low set in the previous session.
Oil and oil service stocks also showed considerable weakness. The Amex Oil Index closed down 1.4 percent, while the Philadelphia Oil Service Index saw a decline of 4.4 percent. Crude oil inventories were higher for the first time in six weeks, pushing oil prices sharply lower on the New York Mercantile Exchange.
U.S. commercial crude oil inventories increased by 4.3 million barrels in the week ended September 26. Analysts were mixed, as some were calling for a draw and others a build. However, the rise was better than most of the high-end estimates.
Healthcare stocks also saw significant selling pressure. The Morgan Stanley Healthcare Provider Index closed down 2.3 percent, extending a nearly month-long downtrend. With the decline, the index set a five-month closing low.
The weakness seen in the healthcare sector came after a UBS analyst downgraded several stocks in the sector, including Tenet Healthcare (THC) and Universal Health Services (UHS). Shares of Tenet Healthcare closed down 5.4 percent, while shares of Universal Health Services fell 5.1 percent.
Other stocks that showed notable weakness include railroad, real estate and computer hardware stocks. The Dow Jones Railroad Index closed down 2.4 percent, the Morgan Stanley REIT Index closed down 2.4 percent and the Amex Computer Hardware Index closed down 1.9 percent.
On the other hand, airline stocks benefited from the drop in oil prices. The Amex Airline Index closed up 7.2 percent, adding to a notable gain posted in the previous session.
Bank stocks also showed considerable strength. The KBW Bank Index saw a gain of 6.9 percent. Within the bank sector, National City (NCC) saw one of the biggest gains, closing up 65.1 percent. Elsewhere in the financial sector, brokerage stocks closed higher as well, with the Amex Securities Broker/Dealer Index climbing 2.6 percent.
Dow Components
While the Dow components pared their earlier losses, the blue chip index still ended the session with a modest loss. Of the 30 stocks that make up the Dow, 15 ended the day lower, 14 closed higher and General Motors (GM) closed flat.
Alcoa (AA) was one of the worst performers in the Dow. Shares of the aluminum producer closed down 5.8 percent, extending a recent downtrend. With the decline, the stock set a five-year closing low.
Alcoa said Tuesday that it has decided to reduce the remaining production at the company's Rockdale, Texas aluminum smelter, effective immediately. The company noted that the uncompetitive power supply and challenging market conditions forced it to take the step. Alcoa expects to record a pre-tax charge of about $48 million in the third quarter to cover the costs related to the reduction in production.
Amid concerns over an economic downturn, IBM (IBM) ended the session sharply lower as well. The stock saw a decline of 5.8 percent, reversing a modest gain posted in the previous session. The stock closed at its worst level since late February.
Following the release of a dismal reading on the manufacturing index, Caterpillar (CAT) also saw significant selling pressure. The stock closed down 4.5 percent, setting a two-year closing low. General Electric, Hewlett Packard (HPQ) and Verizon (VZ) saw notable weakness as well.
On the other hand, financial stocks ended the day sharply higher ahead of the Senate vote on the bailout plan. Citigroup (C), Bank of America (BAC) and JP Morgan Chase (JPM) all rose substantially. Citigroup closed up 12.1 percent, Bank of America closed up 8.9 percent and JP Morgan Chase closed up 6.3 percent.
Other Dow components that closed notably higher include McDonald's (MCD), Pfizer (PFE) and Coca Cola (KO). McDonald's closed up 3.2 percent, compared to a 2.7 percent gain by Pfizer. Coca Cola ended the session 2.4 percent higher.
Other Markets
In overseas trading, stock markets across the Asia-Pacific region closed mostly higher on Wednesday, although several markets remained closed on account of public holidays. Japan's Nikkei 225 average opened higher and held above the unchanged line throughout the session, closing up 1 percent.
The major European markets ended Wednesday's trading on a mixed note. While the German DAX receded 0.4 percent, the French CAC 40 closed up 0.6 percent and the U.K.'s FTSE 100 Index ended the day up 1.2 percent.
Meanwhile, treasuries ended the session with moderate gains. After seeing early strength, the benchmark ten-year note pared nearly off of its gain over the course of the afternoon, though it still ended the session modestly higher. Subsequently, the yield on the ten-year note closed down 5.9 basis points at 3.768 percent after falling as low as 3.644 percent.
Looking Ahead
Looking ahead to Thursday, investors will look at the Labor Department's weekly jobless claims report for a preview of the department's monthly employment report that will be released on Friday. Analysts expect initial jobless claims to decrease to 475,000 for the week ended September 27th after seeing a sharp increase in the previous week that was skewed by Hurricane's Gustav and Ike.
Later in the morning, the Department of Commerce will release its factory orders report. Economists expect the data will show a decline of 2.9 percent in the month of August after seeing a gain of 1.3 percent in July.
On the earnings front, Micron Technology (MU) is scheduled to release its four quarter results after the closing bell on Wednesday. Analysts expect the company to report a loss of $0.23 per share, compared to a loss of $0.21 per share in the previous year's quarter.
Before the markets open on Thursday, Constellation Brands (STZ) and Marriott International (MAR) are scheduled to release their quarterly results. Constellation Brands is expected to report second quarter earnings of $0.44 per share, while Marriott is expected to report third quarter earnings of $0.32 per share.
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June 05, 2026 16:18 ET A busy week for economic news flow saw a slew of reports being released that reflected the trends in the U.S. labor market. In Europe, economic growth and inflation data gained attention as the European Central Bank and Bank of England head for policy session later in the month. In Asia, the monetary policy session of the Indian central bank was in focus as the country, a major oil importer, reels under the pressures of a weaker rupee and rising inflation.