Stocks Stall Before Fed Meeting
Wall Street stalled Monday as investors took profits from last week’s big rally and considered the possibility that the Federal Reserve might not cut interest rates after all when it meets today. Blue chips pulled back slightly, while technology shares managed a small gain.
Analysts said would-be buyers wanted to see what retail earnings and other economic data due out this week look like, and whether companies would meet a government deadline to certify financial statements later this week. Also weighing on the market was Sunday’s bankruptcy filing by US Airways Group, which prompted investors to dump airline shares.
“The news is not appetizing,” said Larry Wachtel, stock market analyst for Prudential Securities. “You have the US Air bankruptcy and there’s a universal belief the Fed won’t be cutting rates [on Tuesday]. The economy is also a source of concern.”
Meanwhile, yields on longer-term Treasuries fell again as declining stocks boosted demand for government securities.
The Dow Jones industrial average closed down 56.56 points, or 0.7%, at 8,688.89, cutting short a four-session winning streak and paring last week’s 432-point gain--the Dow’s best weekly performance since September.
The Standard & Poor’s 500 index slipped 4.84 points, or 0.5%, to 903.80, with financial stocks contributing almost half of the decline. The Nasdaq composite index was little changed, rising less than a point to 1,306.84.
Losers led winners by 9 to 8 on Nasdaq, and were about even on the New York Stock Exchange. Trading was light.
Stocks recouped some of their losses in the final two hours of trading. Some investors and traders said buyers were lured into the market because the early sell-off, which drove down the S&P; 500 by as much as 1.8%, was smaller than expected after four days of gains.
“They tried to take them down hard and they couldn’t, and some people got encouraged by that,” said Tom Schrader, head of listed trading at Legg Mason Wood Walker.
Stocks rose steadily last week on a mix of bargain hunting after a huge sell-off and hopes that the Fed might cut interest rates further because of data suggesting that the economy is faltering. The Fed’s Open Market Committee is scheduled to meet today, but by Monday most analysts were downplaying the possibility of a reduction.
Financial stocks were among last week’s best performers, on expectations a rate cut would reduce their costs and boost profits. They gave back some of those gains Monday.
Citigroup lost 23 cents to $34.08; J.P. Morgan Chase slipped 89 cents to $25.46; and Fannie Mae, the biggest purchaser of mortgages, dropped $1 to $74.10.
“If there was higher confidence of a rate cut [today], the financials wouldn’t be down as much as they are,” James Weiss, chief investment officer for equities at State Street Research & Management Co., told Bloomberg News.
In the bond market, the yield on the benchmark 10-year Treasury note fell to its lowest level in a week--to 4.21% from 4.26% Friday--as expectations of a rate cut waned.
The yield on the two-year T-note, which more closely tracks moves in the Fed’s target interest rate, was unchanged at 2.07%. A week ago the note’s yield had reached a record low of 1.89% as some traders had bet the Fed would cut rates for a 12th time since January 2001.
Losses in “stocks are going to underpin the bond market as long as they continue,” said Michael Cloherty, a fixed-income strategist at Credit Suisse First Boston.
Analysts say the main issue for the stock market remains the prospects for improving profits at companies, many of whom so far have been hesitant to say business is getting better.
“We’re going to bounce around until we get a clear picture about whether the economy is going to accelerate in the second half or consumer spending will slow,” said Mike Kayes, chief investment officer at Eastover Capital.
Investors also will be watching this week to see whether the companies required to certify their financial reports meet the Securities and Exchange Commission’s deadline on Wednesday.
Only about a quarter of the companies required to file this week had done so as of Monday afternoon.
In other trading, the dollar fell against the euro and the yen. Oil rose $1 to $27.86 a barrel in New York trading as Iraq said it won’t allow U.N. weapons inspectors back in the country.
Other highlights included:
* US Airways’ decision to file for bankruptcy over the weekend soured the session for the airlines sector. UAL, United Airlines’ parent, fell $1.40 to $3.80, a decline of 26.9%, on concerns the airline might be the next carrier forced into bankruptcy. AMR, parent of American Airlines, lost $1.23 to $8.36, and the Bloomberg index of 18 U.S. airline stocks fell 6.3% with every member losing ground except US Airways, which didn’t trade Monday on the NYSE.
Commercial aircraft maker Boeing, a Dow industrial, fell 50 cents to $40.50.
* Investors also were focused on retailers, many of whom are expected to report earnings today including J.C. Penney and Wal-Mart Stores. Penney rose 12 cents to $16.75, while Wal-Mart fell 79 cents to $48.41.
* Technology stocks, which had enjoyed sizable gains last week, struggled. Intel fell 33 cents to $17.53 after Salomon Smith Barney reduced its estimates on the stock, citing soft demand. Applied Materials, which counts Intel as one of its biggest customers, slipped 28 cents to $13.58 ahead of earnings due out today.
* Overseas markets were lower. Japan’s Nikkei index fell 2.5%. In Europe, key share indexes fell 3% in Germany, 2.3% in Britain and 2.4% in France.
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Market Roundup, C8-9
