Stocks' Swoon Stokes Correction Talk

By PETER A. MCKAY

The stock market's recent swoon, fueled by worries about the fallout from Europe's credit crisis, has pushed major indexes back within reach of a 10% correction.

The Dow Jones Transportation Average, the sister measure to the industrial average, as well as the Nasdaq Composite and the Russell 2000, fell below the traditional 10% threshold during the day, though bounced back before the close.

All ended down 9% or more from their highs reached this spring. All three market measures previously entered correction territory on May 7 after the "flash crash" of the previous day.

The S&P 500 is now down 8.4% from its closing high. Of all the major indexes, the Dow Jones Industrial Average is furthest from entering a correction. The Dow ended Wednesday down 66.58 points at 10444.37—6.8% off its high.

That the Dow transports index is heading lower, sooner, is a concerning sign to some traders who traditionally look at the transports as a leading indicator. They argue that waning demand to move goods usually means that spending is down, which is likely to translate into lower profits for product makers in the industrial average.

Ten-percent market declines have been common in previous bull markets to shake out speculative excess. But they have been notably absent during the current bull run, which began in March 2009.

That absence has heightened some traders' jitters about the current retreat, while optimists have latched on to a scenario only slightly less distasteful, that the market may be "correcting" this time by going through a prolonged malaise in lieu of completing an actual 10% leg down.

"The market has been more volatile lately, but if you really look at it, it's back where it was in February," said technician Roger Volz, of BGC Partners. "That kind of sideways move may be the consolidation we're all looking for, a time correction instead of a price correction."

Bank stocks on Wednesday bucked the downward trend as some traders bet the financial regulation making its way through Washington may not be as harsh on financial companies as previously thought.

Corporate bond prices fell for a fourth straight day, pushing borrowing costs higher. The price of protecting against a default by an investment-grade corporate borrower rose 3%, according to the Markit CDX index.