Overall Market Turns Up While Facebook Slides

All three of the major stock indexes posted gains of more than 1 percent to start off a trading week shortened by the Memorial Day holiday. Last week, the indexes posted their first weekly gain since April.

But Facebook shares fell $3.07, or 9.6 percent, to $28.84 on Tuesday, the second-steepest decline since they made their debut May 18. The stock is now 24 percent below its initial offering price of $38.

“Perhaps there is a situation where the banks overpriced it,” said Jason D. Pride, the director of investment strategy at Glenmede, an investment firm, referring to Facebook’s initial price. He added that the decline in the stock was “not necessarily a vote of confidence for or against the company.”

Still, Facebook’s decline on Tuesday could suggest that investors have growing doubts about the prospects for the social networking company. Despite the hoopla of the company’s trading debut, the stock closed with barely any first-day gains at $38.23.

Brian Overby, the senior options analyst at Tradeking, said investors still appear to be thinking about Groupon, the daily deals site that went public last year at $20 a share.

Groupon hit its highest share price of $31.14 on its first day of trading in November. The stock closed Tuesday at $11.79. “People have Groupon in the back of their head,” he said.

“I think Facebook right now does not know where the bottom is,” Mr. Overby added. “The stock is going to continue to be very volatile, and the one thing that would probably help lower the volatility is when they announce earnings in July.”

But investors are starting to adjust their expectations for Facebook, as options trading on the company’s shares started on Tuesday. Mr. Overby said he saw both bullish and bearish assumptions in the trading, but he noted that the July 25 put option, giving a right to sell, showed 13,000 contracts traded, providing speculation that the stock would go down to the $25 level before that option expired.

“Part of the reason why people are so nervous is people are wondering a lot what this first public announcement of earnings is going to mean,” Mr. Overby said. “I do expect to see this type of volatility all the way out until that earnings report, and then we will see the stock start to settle down.”

Options trading in Facebook showed high demand, analysts said.

“Volume is incredibly heavy,” said Henry Schwartz, president of the option analytics firm Trade Alert. He said that with about 370,000 options contracts changing hands, Facebook’s volume was second to that of Apple, the leading single stock option class, which had about 490,000 contracts.

“Apple has been the segment leader for months now,” Mr. Schwartz said. “So for Facebook to start up and be in second place on Day 1 is pretty amazing,” he said.

He said the options for Facebook stock were listed out to January 2014, but most of the volume was for the June contract. The most active was the June 30 put option at which stock could be sold at $30, he said.

“Most of the flow today is coming from hedgers who want to protect what has already become a mess,” he said. “They may not want to actually sell the stock, but buying puts gives them a temporary floor to their position.”

The decline in Facebook did not seem to cast a long shadow over other social networking stocks. On Tuesday, as shares of Facebook were trading at roughly 24 percent below their offering price, rivals like LinkedIn were up. LinkedIn closed up 1.4 percent at $99.94.

In the broader stock market, the Standard & Poor’s 500-stock index closed up 14.60 points, or 1.11 percent, at 1,332.42.

The Dow Jones industrial average gained 125.86 points, or 1.01 percent, to 12,580.69, while the Nasdaq composite index rose 33.46 points, or 1.18 percent, to 2,870.99.

The day was dominated by the effects of the European sovereign debt crisis playing out in Spain and Greece, as well as the mixed economic data in the United States.

“The reality of it is the market got oversold,” Mr. Pride of Glenmede said. “It seems like regulatory authorities in Europe are talking better, and a number of leaders have professed some interest in putting forth a euro bond.”

In Europe, the Euro Stoxx 50 index, a barometer of euro zone blue chips, rose 0.6 percent, while the FTSE 100 index in London added 0.7 percent.

In the United States, the Standard & Poor’s/Case-Shiller composite home price index of 20 metropolitan areas gained 0.1 percent in March on a seasonally adjusted basis, although it was below forecasts for a gain of 0.2 percent. The year-on-year index fell 2.6 percent in March, a smaller drop than the 3.5 percent yearly decline of February.

Separately, the Conference Board said its index of consumer confidence fell in May to 64.9, its lowest since the start of 2012. The decline defied expectations for an increase.

The price of the Treasury’s 10-year note was unchanged from Friday at 100 1/32, as was its yield at 1.75 percent.