Mid-Day Recap: Stocks Struggle to Maintain 9-Day Rally

Federal Reserve chairman Ben Bernanke made it clear earlier in the week that the central bank wouldn’t be taking the punch bowl away any time soon, but more talk of increased regulation from Treasury Secretary Tim Geithner appears to be scaring off investors from getting tipsy on the punch anyway, sharply halting a nine-day rally.

Halfway through the trading session, all major US stock indexes are in the red. The Nasdaq is faring the worse, trading 0.97% lower at 1954, while the S&P 500 has dropped 0.27% to 973. The Dow, which yesterday passed the 9000 mark for the first time since January, is trading 0.17% lower at 9055.

In addition to Geithner’s testimony, disappointing earnings helped stop the rally in its upward tracks, while the only data point of the day ― consumer sentiment ― fell for the first time in five months. 

The Reuters / U of Michigan survey of Consumer Sentiment actually improved compared to the preliminary reading two weeks ago, but a two-point gain to 66.0 wasn’t enough to hold on to the 70.8 reading in June.

Both components fell this month, indicating that consumers are more pessimistic about present conditions as well as the medium-term outlook. The current conditions component fell to 70.5 from 73.2, but it was the six-month expectations component that really drove the decline, as it dropped to 63.2 from 69.2.

Investors look to the latter component to project future consumption, which accounts for more than two-thirds of the American economy.

Meanwhile, on Capitol Hill, Geithner and Bernanke testified on regulatory reform to the House Financial Services Committee.

U.S. Treasury Secretary Timothy Geithner said on Friday he was willing to work with lawmakers on shaping an overhaul of financial regulations, but insisted major changes are necessary.

Geithner told the committee the “outdated and ineffective” financial system was "failed in its most basic responsibility" as he called for financial overhaul to ensure a similar event couldn’t shake the global economy again.

“We cannot afford a situation where we leave in place vulnerabilities that will sow the seeds for future crises,” Geithner said in his prepared remarks.

Bernanke, speaking on Capitol Hill for the third day this week, said regulators also needed to tackled the problem of “too big to fail” institutions.

FDIC chairwoman Sheila Bair, also speaking at the event, made similar remarks when she said the "notion of too big to fail creates a vicious cycle that needs to be broken."