Dow Drops 15.13 as Rate Cut Hopes Fade : Market Overview
* The stock market staged a broad retreat on the growing view that the Federal Reserve is unlikely to lower interest rates any time soon. The Dow Jones average of 30 industrials dropped 15.13 points to 3,378.71, bringing its decline to 19.28 points since it hit a record high on Tuesday.
* Treasury bond prices also fell for the second day in a row after the Fed gave no sign that it planned to lower rates. The yield of the Treasury’s bellwether 30-year bond, which moves in the opposite direction from price, was 7.86%, up from 7.80% Wednesday.
* Oil prices surged on speculation that OPEC’s meeting this week will result in a better supply-demand situation and firmer prices.
Stocks
The stock market made its run to new highs Tuesday amid rising expectations of fresh moves soon by the Federal Reserve to relax its credit policy.
But the excitement began to die down Wednesday when the Fed seemed to signal that it wasn’t ready yet to make such a move.
“Most of the market woke up to the fact that the Fed is not going to ease,” said Robert Walberg, a market analyst at MMS International. He said the market was readjusting from overly high expectations of a cut in rates.
A sharp drop in new jobless claims reported by the Labor Department showed unexpected strength in employment, making a cut in interest rates even less likely, analysts said.
Analysts said that with hopes of a rate cut dashed, investors found little reason to be aggressive.
Declining issues outnumbered advances by almost 2 to 1 on the New York Stock Exchange.
Big Board volume came to 184.86 million shares against 198.76 million Wednesday.
Among the day’s highlights:
* Federated Department Stores, one of the volume leaders among NYSE issues, dropped 1/8 to 11 7/8 on turnover of nearly 9 million shares. Underwriters late Wednesday priced an offering of 40 million Federated shares at $11.50 apiece.
* U.S. Shoe tumbled 2 1/8 to 12 5/8. The company reported lower profits for the fiscal quarter ended May 2 and said it expects another earnings decline in the current quarter because of what it described as a “soft retail environment.”
* Navistar was heavily traded, down 1/4 at 2 7/8. The truck maker posted a loss of 17 cents a share for the fiscal second quarter ended April 30, and projected a loss for the current quarter as well.
* Charming Shoppes, traded in the NASDAQ over-the-counter market, rose 1 5/8 to 29 3/8 on the company’s report of higher quarterly earnings.
* Amgen gained 1 3/4 to 59. Gordon Bordon, the biotechnology company’s chief executive, described himself as “comfortable” with analysts’ estimates that sales will reach $1 billion this year.
* Ben & Jerry’s Homemade, also traded over-the-counter, added 2 1/2 to 43 3/4 on news of a pending 2-for-1 stock split.
* Hospital firm Humana fell 1 3/4 to 21 1/4 on top of a 2 1/4-point loss Wednesday, when the company forecast lower quarterly profits.
* The upswing in interest rates hurt mortgage-finance issues. Federal National Mortgage dropped 1 5/8 to 64, and Federal Home Loan Mortgage fell 1 1/4 to 41 1/4.
* Numerous industrial stocks with close links to the ups and downs of the business cycle also lost ground. Phelps Dodge fell 1 1/2 to 88 1/8; Georgia-Pacific 1 1/4 to 64; International Paper 5/8 to 70 5/8; Dow Chemical 5/8 to 61 7/8, and Chrysler 1/2 to 18.
* Torrance-based hazardous-waste disposal firm International Technology slid 5/8 to 5 1/4, a new 52-week low. The ailing firm reported a quarterly loss and said as a result it is not in compliance with certain covenants of its loan agreements with creditors.
Overseas, Tokyo stocks closed barely changed in dull trading. The 225-share Nikkei average ended up 16.36 points at 18,691.29.
Losses on Wall Street and weakness in the futures market depressed London stock prices. The Financial Times 100-share average closed 9.9 points lower at 2,702.
In Frankfurt, shares ended mixed in a relatively quiet session with the DAX-30 average closing at 1,785.48, 2.02 points lower.
Credit
The bond market was reacting to a Wall Street Journal article that said the central bank decided against an immediate rate cut, said Steven R. Ricchiuto, chief economist at Barclays de Zoete Wedd Securities Inc.
The price of the 30-year bond fell 5/8 point, or $6.25 per $1,000 in face amount.
The federal funds rate, the interest on overnight loans between banks, was 3.813%, up from 3.750% late Wednesday.
The Journal, citing anonymous sources, said the central bank’s Federal Open Market Committee voted Tuesday to put interest rate policy on hold. The Fed does not disclose the board’s votes until weeks afterward.
Many bond traders had assumed a rate easing was imminent to stimulate the economy and had built this optimistic expectation into bond prices. Bond prices generally rise on lower rates because that increases the value of the securities.
Currency
The dollar ended mostly higher in technically driven, light trading.
A dollar rally amid moderate morning trading ran out of steam in the afternoon ahead of the long Memorial Day weekend.
Traders said that indicated the rise was more a technical correction than a shift in the market sentiment toward the dollar. On Wednesday, the dollar reversed its downward spiral of the last few sessions.
In New York, the dollar closed at 130.35 Japanese yen, up from 129.50 Wednesday, and at 1.616 German marks, up from 1.601.
Commodities
Oil for July delivery on the New York Mercantile Exchange jumped 50 cents to $20.90 a barrel on speculation that Saudi Arabia may show some flexibility in OPEC output talks this week.
OPEC is in its usual seasonal fight over how to keep prices stable to rising, and avoid another huge supply glut.
Helping the oil markets Thursday was word that OPEC continued to shave crude oil production in April, trimming output to 23.29 million barrels a day from 23.46 million in March.
Elsewhere, soybean futures continued their slump on the Chicago Board of Trade, with another sharp selloff attributed to forecasts of ideal growing weather and liquidations of long positions by speculators.
July soybeans slid 15.25 cents to $5.94 a bushel.
The prices of gold and silver futures fell on New York’s Comex. Gold for delivery in May settled $1 lower at $337 an ounce; May silver was 1.7 cents lower at $4.063 an ounce.
