Dow Off 12 as Fed Stands Pat; Dollar Gains
Blue-chip stocks snapped a nine-session winning streak Tuesday as a mild bout of profit taking followed the Federal Reserve Board’s decision to leave interest rates unchanged.
The Dow industrials, which had advanced 175 points over the previous nine sessions, eased 12.56 points to 5,736.26.
Most broader market indexes also edged lower, after joining the Dow at record highs on Monday.
The Fed, which met Tuesday, decided against any changes in short-term interest rates despite the economy’s surprising strength in recent months. Expectations that the Fed would bless the status quo--rather than tighten credit--had helped stocks rally recently.
“It’s kind of like buying on the rumor and selling on the inaction,” said Marty Kearney, a trader at PTI Securities, reflecting on Tuesday’s market session.
There was little else to move the market on Tuesday. Oil prices stabilized after rebounding Monday, on news that Iraq will begin selling crude again.
In the bond market yields finished slightly higher, after dipping early in the day. A report by retail-industry tracker Johnson Redbook showing a 6.1% increase in national retail sales in the first two weeks of May, compared with April, was stronger than expected, analysts said.
That may have fanned some bond investors’ fears that the economy will continue to gain speed, eventually leading to a move by the Fed to tighten credit.
The 30-year Treasury bond yield ended at 6.85% Tuesday, up from 6.83% Monday and up from 6.81% early Tuesday.
The retail-sales report could deepen concern “that in the next couple of days, someone from the Fed will step forward and make remarks suggesting that, while the Fed didn’t raise rates today, they’re ready to,” said Joseph LaVorgna, a money market economist at Lehman Bros.
One “investment” that could benefit from higher interest rates would be the dollar. It rose to a 16-month high against the German mark Tuesday, helped by optimism about the U.S. economy and by suggestions that the German central bank wants the mark to weaken further.
Bundesbank council member Olaf Sievert suggested a weaker mark--and stronger dollar--would boost Germany’s sagging economy. A higher dollar “would have benefits,” Sievert said. A strong dollar makes U.S. exports less competitive with German exports.
The dollar also benefited from remarks by U.S. Deputy Treasury Secretary Lawrence Summers that the U.S. would “prefer a strong dollar” and a call by French Finance Minister Jean Arthuis for the dollar to rise further against other major currencies.
The dollar rose to 1.544 marks in New York, up from 1.535 Monday. The dollar also inched up to 107.18 Japanese yen from 107.08.
On Wall Street, losers had only a modest edge over winners on the New York Stock Exchange and on Nasdaq. The Nasdaq composite index dipped 3.69 points to 1,244.42. The Standard & Poor’s 500 index was off 0.39 point to 672.76.
Among Tuesday’s highlights:
* Energy-related stocks lost ground after surging Monday, when crude prices jumped on the heels of Iraq’s announcement. Exxon fell 1 1/8 to 86 1/8, Atlantic Richfield lost 1 5/8 to 119 7/8 and Western Atlas dipped 1 1/8 to 62 1/8.
In futures trading, the June crude oil contract on the New York Merc edged up 17 cents to $22.65 a barrel. But longer-term contracts pulled back.
Despite the expectation that Iraqi oil will help ease a tight world supply situation, prices had jumped Monday because the market was already anticipating the Iraqi agreement, and had pushed prices lower in recent weeks, traders said.
The new Iraq sales will amount to “less than 0.75% of the daily world demand,” said energy analyst Peter Beutel, not “enough to tip the market’s balance.”
* Many technology issues were hit by profit taking. Intel eased 3/4 to 70 1/4, Cadence lost 1 5/8 to 53 3/4, Cabletron Systems sank 5 to 78 7/8 and PairGain Technologies dropped 3 7/8 to 105 1/8.
* Some investors sought out “safe” stocks such as major telephone firms. Ameritech rose 1 to 58 5/8, BellSouth gained 1 1/8 to 41 1/2 and SBC Communications was up 1/2 to 49 3/4.
* Dayton Hudson surged 4 to 106 after the retailer reported better-than-expected first-quarter profits. Compuware leaped 6 5/8 to 37 1/8 on its earnings report. And luxury goods maker Gucci soared 5 1/4 to 70 7/8 after reporting first-quarter sales up 113%.
* Among new issues, Wyndham Hotel rocketed 6 5/8 to 22 5/8 in its first day of trading on the NYSE.
Overseas, stocks advanced strongly in Tokyo, Frankfurt, Mexico City and Hong Kong.
