Interest Fears Trip Bulls
In a replay of Tuesday’s session, some strong economic reports got the stock market’s bulls running early Wednesday, but rising interest rates again snuffed out most of the gains by the end of the day.
In other trading, gold pulled back after reaching an 18-year high of $500 an ounce. Natural gas prices continued to surge on cold-weather concerns.
European stock markets were mostly lower ahead of an expected interest-rate increase today by the European Central Bank.
On Wall Street, the Dow Jones industrial average sank 82.29 points, or 0.8%, to 10,805.87 after rallying about 36 points in morning trading. It was the Dow’s third straight loss.
The Standard & Poor’s 500 fell 8 points, or 0.6%, to 1,249.48.
A raft of economic data, most of it upbeat, encouraged equity investors early on.
The government revised its estimate of third-quarter economic growth to a 4.3% real annualized rate, up from a previous estimate of 3.8%.
Also, the Federal Reserve’s latest report on regional economic activity pointed to continued strength in November, as did a separate report on Chicago-area manufacturing activity.
The stock market was happy with the news, but the bond market wasn’t: Treasury bond yields rose, with the two-year T-note ending at 4.41%, up from 4.39% on Tuesday and the highest since Nov. 15.
The two-year note is particularly sensitive to expectations for Federal Reserve interest rate moves, and the latest economic data suggest the central bank has no reason to pause soon in its credit-tightening campaign, many analysts say.
“The U.S. economy will remain strong enough for the Fed to tighten further,” said Jan Lambregts, head of research at Rabobank Singapore. “The overall data will support the case that the Fed will continue to tighten to 5% by May 2006,” he said.
The Fed’s key short-term rate now is 4%. Policymakers meet again on Dec. 13.
Stocks had rallied sharply for most of November, in part on hopes that interest rates might be nearing their peak. The 10-year Treasury note yield, which hit a 17-month high of 4.66% on Nov. 4, fell to 4.40% as of Monday. But it rebounded Tuesday to 4.48% and inched up to 4.49% Wednesday amid the barrage of strong economic data.
Falling energy prices also were bullish for stocks last month, but prices have stabilized in recent days. Near-term crude oil futures in New York rose 82 cents to $57.32 a barrel Wednesday after the government said U.S. oil inventories fell 4.2 million barrels last week, a bigger-than-expected decline.
Natural gas futures jumped 85.1 cents to $12.587 per million British thermal units, the highest since Oct. 28, as a weather system that covered the northern Plains with snow and cold spread over the Midwest.
Given the bad news in the bond and energy markets Wednesday, the stock market could have performed worse than it did, some analysts said.
The broader market wasn’t hit as hard as the Dow, and some key indexes still eked out gains. The technology-heavy Nasdaq was up 0.11 point to 2,232.82.
The Russell 2,000 index of smaller stocks added 3.60 points, or 0.5%, to 677.29.
Winners topped losers by about 7 to 5 on Nasdaq, while losers had a slight lead on the New York Stock Exchange.
For the month the Dow gained 3.5%, and is up 0.2% year to date. The S&P; 500 also rose 3.5% in November and is up 3.1% this year. The Nasdaq index jumped 5.3% last month and is up 2.6% for the year.
“We’ve had a great four- to six-week run, and now the economic data has been far better than expected,” said Jack Caffrey, equity strategist for J.P. Morgan Private Bank. “So at this point, seeing the market consolidate here makes perfect sense.”
Among the day’s highlights:
* Financial stocks led blue chips lower amid interest-rate jitters. Comerica fell $1.10 to $57.67, Wells Fargo lost 99 cents to $62.85 and Merrill Lynch dropped $1.10 to $66.42.
* Concerns about holiday sales left retailers mixed. Tiffany slid $1.44 to $40.70 despite reporting a 37% gain in third-quarter profit. Chico’s FAS lost 77 cents to $44.11 and Coach slumped $1.34 to $34.43, but Ann Taylor was up 64 cents to $30.33.
* General Motors and Ford fell ahead of their November sales reports. GM dropped $1.10 to $21.90; Ford sank 40 cents to $8.13.
* Google stabilized after diving $19.94 on Tuesday in heavy profit taking. The stock rose $1.37 to $404.91.
* Gold mining shares declined after gold again reached the $500 mark but failed to close above it. Near-term gold futures fell $4.50 to $494.60 an ounce. Among miners, Barrick Gold fell 41 cents to $26.61 and Goldcorp lost 99 cents to $20.32.
* Many oil and natural gas drilling stocks were higher with energy prices. Transocean gained $1.23 to $63.84 and Helmerich & Payne jumped $1.40 to $58.02.
* European markets declined ahead of the European Central Bank’s meeting today. The bank is expected to lift its key short-term rate from 2% to 2.25%, in what would be the first increase in five years. The Spanish market lost 0.6%, French shares dropped 0.5% and the German market was off 0.1%.
