Despite Late-Day Decline, Volatility Subsiding

Stocks ended lower on US exchanges, though the entire range of trade was much more compressed than recent, more volatile sessions, an indication that the credit crisis, which caused a severe decline in general stock value, may be subsiding.

Today's complete range on the Dow Jones industrial Index was 280 points - still somewhat jumpy, but nothing compared to the 500 to 1000-point swings which occurred during the height of the crisis.

Following yesterday's 400+ point gain, there was some sensibility to Tuesday's decline. After all, most market participants are still a bit shell-shocked by recent events, so short-term traders were taking profits and the end-of-day resettling seemed, by most comparisons, rather normal.

With little in the way of economic news to rattle or sooth traders' nerves, the focus was clearly on earnings. Most of the companies (roughly 65%) reported earnings either in line with estimates or beat expectations. That left a bulk of companies with earnings misses, and by the end of the day, investors had taken note along with taking money off the table.

Dow 9,033.66 -231.77; NASDAQ 1,696.68 -73.35; S&P 500 955.05 -30.35; NYSE Composite 6,051.34 -236.26

Along with the reduced volatility, trading volume trended lower for a second straight day. As the headline numbers suggest, decliners beat advancers, 4489-1845, and new lows posted higher numbers than new highs, 255-14.

NYSE Volume 1,161,591,000
NASDAQ Volume 2,144,611,000

The reduced volume and volatility are the result of extreme measures taken by governments around the world to un-freeze credit markets. Key interest rates, including the LIBOR, the rate at which banks lend to each other, have been falling, and today reached levels not seen since the collapse of Lehman Bros. in September.

Better liquidity in credit markets is key to the general health of the economy, and the recent movement is encouraging.

Corporate earnings, however, were another matter. While 3M (MMM), American Express (AXP), DuPont (DD) and Pfizer (PFE) reported profits in excess of estimates, a couple of larger firms, Caterpillar (CAT) and Texas Instruments (TXN) missed and were punished by investors. A spate of companies also issued 4th quarter and 2009 guidance that was not very rosy.

All of these elements contributed to the overall decline in stocks.

Commodity prices showed sympathy for the most part. Oil for December delivery traded at $72.30, down $2.09 from Monday's close. Gold continued its free-fall, losing another $22.00, to $768.00. Silver bucked the trend, trading 39 cents higher, to $10.08.