Early Rally Crumbles on Recession Fear

One thing equity investors cannot escape in this discontented winter of 2008 is the overwhelming fear - bolstered by uniform economic reports and anecdotal examples of doom and gloom - that the US economy is headed for recession and that stocks will take a serious beating later this year.

That is the kind of environment that dominated the emotional trade on Wednesday as stocks struggled in the first half-hour, but eventually found their way to higher ground during the morning session.

By 11:30, the Dow was up 125 points, but that proved to be the high of the day as the hopeful rally fizzled and stocks headed south once more.

Shortly after 2:00 pm, all major indices slipped into negative territory, but it wasn't until an hour later that capitulation became the clear choice and the rout was on. All major indices recorded their third losing session in a row.

The Dow is already down 543 points for the week.

Dow 12,200.10 -65.03; NASDAQ 2,278.75 -30.82; S&P 500 1,326.45 -10.19; NYSE Composite 8,818.11 -56.39

Volume was on the pathetic side once more, which seems to indicate that there is a lot of money on the sidelines, waiting until this current downdraft subsides. That inference may be true, though investors wanting to put capital to work may have already opted for bonds (even though they are currently paying a negative return when measured against inflation), emerging markets or precious metals.

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The last of those is the obvious choice for many as a hedge against inflation, though both gold and silver have met some resistance at their recent highs and have backed off considerably, though many gold bugs view such pull backs as buying opportunities.

Such was the case today, as gold rose $14.70 to $905.00 and silver gained 21 cents to $16.55. Oil, on the other hand, fell another $1.27 to $87.14, as the outlook for demand continues to weigh along with the recessionary calls.

Declining issues beat advancers once more, 4018-2287. New lows ballooned the separation over new highs, 208-57. The number of stocks making new highs remains dismally low, a sign of the times.

After the close, Cisco (CSCO) reported earnings per share before unusual items of 38 cents per share versus 33 cents a year ago. Revenue rose to $9.8 billion from $8.4 billion. Those numbers were in line with analyst expectations.

NYSE Volume 3,861,878,500
NASDAQ Volume 2,362,025,750