NEW YORK – Stock prices shot up 24 percent from late November to January, fell 7 percent in less than a week — and then stood still.
Welcome to the bear market.
Wall Street has lost some of the enthusiasm that powered its late 2008 rally. The Dow Jones industrials have taken the biggest hit, falling for five straight days as investors questioned whether they got ahead of themselves when they bet in December that the economy and corporate profits were about to recover.
"The wind has sort of been taken out of the sails," said Carl Beck, partner at Harris Financial Group. "The optimism that we saw at the beginning of the year has sort of been put on hold as people await earnings reports over the next couple of weeks."
With companies issuing warnings about their revenue and profit over the past week, the safe play on Wall Street has become to throw out analysts' already lowered expectations and expect results will fall well short.
Alcoa Inc. started the reality check. The aluminum producer warned last week results would be bad and that it was slashing production. Then, late Monday, the company said it lost $1.19 billion during the fourth quarter as demand for aluminum plunged. The stock slumped 5.1 percent Tuesday.
Investors saw Alcoa's numbers as a troubling sign of the severity of the recession. Alcoa's report marks the unofficial start to the three-week rush when most companies report their results from the October-December quarter.
"Alcoa is a harbinger of things to come," said Jeff Buetow, senior portfolio manager at Portfolio Management Consultants. "It was a horrible report."
Investors are worried that economy is punishing even conglomerates like General Electric Co., which has an array of businesses to offset weakness in one area. An analyst warned Tuesday that GE could disappoint investors when it releases results next week.
Market veterans aren't surprised by the return of volatility and somewhat heavier selling to the Street after the relative tranquility of December. When the market hit its lows on Nov. 20, analysts uniformly warned that the market's recovery would be uneven, rocky and unpredictable — the hallmark of a bear market.
The Standard & Poor's 500 index has given up 3.5 percent this year as investors shift into wait-and-see mode over the health of companies' results. Questions about earnings — in particular companies' expectations for business this year — are likely to dominate trading in the coming weeks. Computer chip maker Intel Corp. and drug company Genentech Inc. are scheduled to report results this week.
The market will get an earlier-than-expected reading on the financial sector when JPMorgan Chase & Co. reports earnings on Thursday — nearly a week ahead of schedule. Investors are fearful of seeing another year of multibillion dollar losses from financial companies, as analysts forecast mounting problems in credit card and commercial real estate portfolios.
"Since financials led the market lower last year, the fear is that financials are going to have a crummy quarter," said David Katz, chief investment officer of Matrix Asset Advisors. "That is going to be bad for the market."
Bank of America Corp. tumbled Tuesday after a Sandler O'Neill & Partners analyst became the latest to revise his expectations for the company's fourth-quarter results and predicted a loss. The stock fell 6.8 percent.
Worries about earnings sent the Dow down 25.41, or 0.30 percent, to 8,448.56 on Tuesday. Alcoa, GE, Bank of America and Citigroup are all Dow components.
Broader indexes advanced. The Standard & Poor's 500 index rose 1.53, or 0.18 percent, to 871.79, while the Nasdaq composite index rose 7.67, or 0.50 percent, to 1,546.46. The Russell 2000 index of smaller companies rose 4.99, or 1.06 percent, to 473.79.
The number of stocks that rose on the New York Stock Exchange outnumbered those that fell by about 8 to 7.
After rising on the first trading day of the New Year, stocks last week had their worst weekly performance since November as profit warnings from Wal-Mart Stores Inc., Intel, Alcoa and media company Time Warner Inc. set off investors' fears about companies' suffering under the economy.
"You've got the lingering shroud of doubt in people's minds, 'Is it going to be worse than already lowered expectations?'" Beck said.
Some economists say investors have been too quick to predict that the economy will hit bottom sometime this year and begin to show signs of recovery even in late 2009.
"This recession is nothing like a lot of people have seen," said Robert B. MacIntosh, chief economist at Eaton Vance Investment Managers.
Even with the government trying to lift the economy, a recovery will be difficult.
Federal Reserve Chairman Ben Bernanke said Tuesday the stimulus package being crafted by President-elect Barack Obama and Congress could provide a "significant boost" to the sinking economy. During a speech in London, he also said "more capital injections and guarantees may become necessary" to stabilize financial markets and spur more lending. Obama is pushing for an economic stimulus that includes big tax cuts and has an estimated price tag of about $800 billion.