NEW YORK — Caution returned to Wall Street on Monday as investors gave back some gains from last week’s rally even as they found encouragement from President-elect Barack Obama’s calls for an economic-stimulus package.
Some retreat was to be expected after investors sent the Dow Jones industrial average to a two-month high Friday. Investors are wary about pouring more money into the battered market with economic data still weak and fourth-quarter earnings reports coming later this month.
Monday was expected to be the first real test of Wall Street in 2009 after many traders were on vacation Friday, leading to light volume that might have exaggerated the market’s move upward.
Investors are contending with fears that include the state of corporate earnings and consumers’ willingness to spend during a recession.
Prices fluctuated throughout the session, but some analysts found signs that the market’s improving tone from December was carrying over to the new year.
“There is some optimism out there that there is going to be a massive stimulus package by Obama that is going to get passed and that will help the economy,” said Greg Church, chief investment officer of Church Capital Management.
Church warned, however, that a recovery will be difficult.
“The economy is still very weak. Unemployment is still high and is likely to get worse,” he said.
But some analysts cautioned against drawing big conclusions from Monday’s trading.
“We’re not reading too much into this market right now, especially after Friday’s big gain,” said Matt King, chief investment officer at Bell Investment Advisors. “There’s just not a lot of conviction behind it.
“I do think there is an element of profit- taking from Friday,” when the Dow rose 258 points.
The Dow closed down 81.80, or 0.91 percent, to 8,952.89 after falling as much as 142.
Broader stock indicators showed more modest declines. The Standard & Poor’s 500 index fell 4.35, or 0.47 percent, to 927.45, and the Nasdaq composite index fell 4.18, or 0.26 percent, to 1,628.03.
Analysts expect Wall Street to remain on edge as companies release their quarterly results and, more important, their forecasts for the year. Economists expect terrible profit reports and cautious forecasts, but anything worse than expected could rock the market.
Kim Caughey, equity-research analyst at Fort Pitt Capital Group, said investors are bracing for lackluster earnings, a stance that could help Wall Street more easily absorb bad news.
“I think it may put a limit on the downside because we’re already expecting things to be terrible. It’s not going to take a whole lot to meet or exceed terrible,” Caughey said.
Asian stock markets were mostly higher overnight, shrugging off lackluster trade in the U.S. and Europe.
In Tokyo, the Nikkei 225 stock average rose 0.4 percent as a weaker yen boosted exporters like Sony and Toyota. The Shanghai Composite Index rose 1.8 percent while South Korea’s Kospi was up 1 percent and Australia’s key benchmark added 1.1 percent.
