Hedge Fund Rumors Push Stocks Lower
NEW YORK (AP) -- Wall Street meandered lower Tuesday as investors stuck to the sidelines amid a dearth of good news and speculation that a number of hedge funds have come under pressure due to steep investments in the stock and debt of troubled automaker General Motors Corp.
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Wall Street's now-chronic concerns about whether the economy will slow down or whether inflation will take hold wiped out Monday's moderate gains, when merger news gave the market a shot of optimism. The day's nervousness was partly due to rumors that several global hedge funds had suffered losses in the credit market related to positions taken in auto companies following the significant investment in GM by billionaire investor Kirk Kerkorian's Tracinda Corp.
"Obviously GM's stock got a boost last week on the Tracinda offer, then the bonds got crushed by downgrades by Moody's, so they would've gotten hurt on both sides of that trade," said Todd Clark, head of listed equity trading at Wells Fargo Securities. "Against the backdrop of crude trading higher ... it's a little unsettling."
Crude prices were volatile. Up most of the day, oil prices fell off their highs late in the day, sliding 23 cents to $51.80 on the New York Mercantile Exchange. Still, many investors remain concerned that high gasoline prices will either drive other prices higher or curtail consumer spending.
In midday trading, the Dow Jones industrial average fell 64.71, or 0.6 percent, to 10,319.63.
Broader stock indicators also lost ground. The Standard & Poor's 500 index was down 8.12, or 0.69 percent, at 1,170.72, and the Nasdaq composite index lost 11.55, or 0.6 percent, to 1,968.12.
The bond market rallied as stocks slipped, with the yield on the 10-year Treasury note skidding to 4.24 percent, down from 4.28 percent late Monday. The dollar was mostly lower against other major currencies, while gold prices rose.
"There's nothing really going on here. The economic calendar's backloaded for later this week, no real earnings this morning, nothing really that you can move higher on," said Brian Williamson, an equity trader at The Boston Company Asset Management. "You've got rumors here and there, oil's hurting us a little, but when there's nothing to really move on, you'll head down."
Despite the quiet furor over the possible losses of hedge funds, GM's stock stayed afloat, rising 22 cents to $31.55.
Many investors were looking ahead to a quarterly report from Cisco Systems, due after the close. Forecasts from the tech bellwether, which was up 5 cents at $18.26, have significantly moved the market in the past.
Financial stocks were among the day's worst performers, collectively sagging 0.86 percent, according to the S&P exchange traded fund that tracks the sector.
Morgan Stanley fell 78 cents to $49.97 as Chief Executive Phil Purcell told an investor conference the Discover card spinoff would impact revenues, and that the second quarter was shaping up to be difficult. Morgan Stanley executives also said more employee departures could be forthcoming, but that the company had a deep pool of talent.
The Wall Street Journal reported that the problems plaguing insurer and Dow component American International Group Inc. may have involved more people than just the two recently departed executives, including former Chairman Maurice "Hank" Greenberg. AIG lost $1.18 to $53.40 on the news.
Delta Air Lines Inc. tumbled 9.1 percent, or 30 cents, to $3, after the company warned that it will record substantial losses for the rest of the year and said it may need to file for bankruptcy if its cash reserves fall too low or creditors call in the airline's debts.
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