Stocks Head for Lower Open after Sharp Rally

The Wall St. street sign is photographed in front of the American flag hanging on the New York Stock Exchange prior to a NYC Central Labor Council rally for worker protections, Thursday, Sept. 25, 2008 in New York. (AP Photo/Mary Altaffer)

NEW YORK – Wall Street prepared to cash in some of the previous session's big gains Wednesday, focusing on the weak economy after Barack Obama's election to the White House.

Tuesday's election results weren't surprising to the market, except perhaps in terms of the wide margin by which Obama beat John McCain. Rather, investors appeared to be gauging the economy's troubles again, and acknowledging the fact that stocks have recovered so sharply despite dismal data.

More grim readings are expected this week. After revealing the worst contraction in manufacturing sector activity in 26 years, the Institute for Supply Management is expected at 10 a.m. Eastern time Wednesday to report that the service sector shrank in October after expanding marginally in the previous month.

And later this week, the Labor Department releases its highly anticipated report on October job losses, which are predicted to be massive following a freeze-up in the credit markets that crimped many companies' ability to get financing. Economists on average expect a 200,000 drop in payrolls, according to Thomson/IFR.

Ahead of the market's open, Dow Jones industrial futures fell 97, or 1.01 percent, to 9,490. Standard & Poor's 500 index futures fell 14.00, or 1.40 percent, to 989.20, while Nasdaq 100 index futures fell 22.25, or 1.61 percent, to 1,358.25.

Stocks soared Tuesday, with many investors believing that the worst of this year's financial crisis — at least at the systemic level — is behind them. Some on Wall Street are preparing for a traditional year-end rally despite the economy's problems.

The S&P 500, which on Tuesday closed above the 1,000 mark for the first time since Oct. 13, has climbed 18.3 percent in the past six sessions.

Obama will face an enormous budget deficit when he is sworn in Jan. 20. The current administration Wednesday will detail its plans to borrow a record $550 billion in the final three months of the year for the financial rescue efforts made in response to the global crisis. A Treasury Department official Monday projected the government would need to borrow an additional $368 billion in the first quarter of 2009.

The credit markets, while improved, remain far from healthy.

On Tuesday, banks continued to ratchet down the rates they charge one another for borrowing, but the key interbank lending rate — the London Interbank Offered Rate, or Libor — remains well above the Federal Reserve's target interest rate of 1.00 percent. Libor for three-month dollar loans fell to 2.51 percent Wednesday from 2.71 percent Tuesday.

And the bid for Treasury bills remains high. The three-month bill, considered one of the safest assets around, fell to 0.45 percent early Wednesday from 0.48 percent late Tuesday. A low yield indicates high demand.

On Wednesday, the dollar traded mixed against most other major currencies.

Light, sweet crude fell $1.93 to $68.60 a barrel in premarket electronic trading on the New York Mercantile Exchange.

In Asian trading, Japan's Nikkei index rose 4.46 percent, and Hong Kong's Hang Seng Index rose 3.17 percent. In afternoon trading in Europe, Britain's FTSE 100 fell 1.73 percent, Germany's DAX index fell 1.17 percent, and France's CAC-40 fell 1.92 percent.