NEW YORK — The problem with rising expectations is they get tougher to beat.
Investors broke the stock market’s four-day rally and sold off after data on the services industry and factory orders came in below forecasts. Factory orders rose in April, but the report disappointed investors who anticipated a larger increase.
The Dow Jones industrial average fell almost 66 points.
Optimism about the economy stabilizing has lifted the Dow 32.5 percent from its 12-year low reached in early March. In those three months, topping investors’ expectations meant clearing a relatively low bar.
Alan Gayle, senior investment strategist at RidgeWorth Capital Management, said he began increasing his stock holdings in March on signs that economic data were becoming “less bad.” Now, Gayle said, ” ‘less bad’ is not good enough.”
Even Federal Reserve Chairman Ben Bernanke was no longer emphasizing signs of economic stabilization Wed nesday, as he has done in recent months. In testimony to Congress, Bernanke focused instead on the government’s growing debt load, saying that failing to ease the deficit could undermine efforts to revitalize the economy.
In the last hour of trading, however, some traders bought back into the stock market to take advantage of reduced prices, said Ryan Larson, senior equity trader at Voyageur Asset Management.
It’s the tactic known as bargain hunting, or “buying the dips,” and the move signaled that many market participants still believe the rally has legs.
The Dow fell 65.63, or 0.8 percent, to 8,675.24. The Standard & Poor’s 500 fell 12.98, or 1.4 percent, to 931.76. The Nasdaq fell 10.88, or 0.6 percent, to 1,825.92.
The S&P and Nasdaq pulled back from their highest levels so far this year, reached Tuesday. The S&P and Nasdaq are still up for the year, but the Dow has yet to return to a close in positive territory for 2009. It got within 35 points, or 0.4 percent, of that break-even point Tuesday.
The rally’s staying power will face more tests as retailers report May sales results today and the Labor Department releases jobs data Friday. The monthly jobs report is one of the most closely watched indicators of the economy’s health.
