Stocks Fall Back as Confidence Wavers
A spate of profit taking sent stocks lower Tuesday, as a sharp rebound in the dollar unnerved the bond market and fueled questions about the next big move in interest rates.
Wall Street took back much of Monday’s advance, when key indexes rose to near 32-month highs on the heels of a robust report on U.S. manufacturing.
In commodities markets, oil, platinum and copper prices fell as investors took profits from a string of rallies.
Optimism about the manufacturing sector came back to haunt stocks on Tuesday: Some investors focused on the idea that Friday’s government report on February employment trends, which is expected to show strength, could drive up interest rates.
That sentiment was good for the dollar, but it sent the yield on the benchmark 10-year Treasury note to 4.04% from 3.97% on Monday.
“The prospects don’t look good for long-term Treasuries right now,” Richard Schlanger, who helps manage about $4 billion of bonds at Pioneer Investment Management in Boston, told Bloomberg News.
Still, the selling in the Treasury market and in the stock market was relatively modest on Tuesday, analysts said.
The Dow Jones industrial average lost 86.66 points, or 0.8%, to 10,591.48, nearly erasing the 94.22 points gained Monday.
The Standard & Poor’s 500 index was down 6.86 points, or 0.6%, at 1,149.10 after an 11-point gain Monday.
The Nasdaq composite index fell 18.15 points, or 0.9%, to 2,039.65. It had rallied 28 points the previous day.
Losers outnumbered winners by about 4 to 3 on the New York Stock Exchange and by 3 to 2 on Nasdaq.
“I don’t think what we’re seeing here is an interruption in the overall direction of the market,” said Peter Cardillo, chief strategist at S.W. Bach & Co. “I just think today is just a little bit of profit taking.”
Speaking at the Economic Club in New York, Federal Reserve Chairman Alan Greenspan didn’t help the market’s mood. He said the Fed was holding its key short-term rate at 1% for now, but that “at some point [Fed policy] will have to rise back to a more neutral state because it is inconsistent with general long-term stability.”
Greenspan said later that he had “tentatively” concluded that the U.S. central bank did the right thing by not acting in the 1990s to defuse a growing stock market bubble.
In the bond market, some traders worried that the dollar’s turnaround could reduce foreign central banks’ demand for Treasury bonds in the near term. The banks have been heavy buyers of Treasuries, attempting to slow the dollar’s fall.
In commodities markets, the stronger dollar was bad for gold futures, which sank $5.80 to $393.50 an ounce. Other commodities also pulled back. Oil futures dipped 20 cents to $36.66 a barrel after rising Monday to the highest level since the Iraq war one year ago.
Among Tuesday’s highlights:
* Energy stocks pulled back with oil prices. Sunoco lost $1.15 to $61.25 and Valero Energy was off $1.75 to $58.91.
* Some companies that have been helped by the weaker dollar saw their shares ease. Procter & Gamble fell $1.74 to $102.12. Coca-Cola dipped 34 cents to $49.28.
* Real estate investment trusts attracted buyers. CenterPoint Properties jumped 75 cents to $79 and Kimco Realty gained $1.10 to $48.50.
* Walt Disney fell 11 cents to $26.76 as dissident shareholders met in Philadelphia to make a case against chairman and chief executive Michael Eisner. Shares of Comcast, which has made an unsolicited bid for Disney, fell 37 cents to $29.23.
