Economic reports make Wall Street rally fizzle

NEW YORK (AP) — 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 actually rose in April, but the report disappointed investors who anticipated a larger increase.

The Dow Jones industrial average fell almost 66 points, or 0.8 percent, while the Standard & Poor’s 500 index fell 1.4 percent. The Nasdaq composite index, which has been outperforming the other indicators this year, fell just 0.6 percent.

Optimism about the economy stabilizing has lifted the Dow 32.5 percent from its 12-year low reached in early March. Over 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 was 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 on Wednesday, 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.

“At some point, it’s hard to fight the trend, and the trend over the last couple of months has been up,” Larson said. “People don’t want to be left out.”