Stocks Mixed on Fed Remarks
Stocks staggered to a mixed finish Wednesday after Federal Reserve Chairman Alan Greenspan told a congressional committee the economy was strong, a sign that the central bank was likely to continue raising interest rates.
After his remarks, the dollar firmed against other currencies, gold declined and yields on U.S. Treasuries rose. But stocks stalled as investors tried to discern how far the rate tightening would go.
“The problem for stocks is there’s no end in sight,” said Jack Ablin, chief investment officer at Harris Private Bank in Chicago. “Greenspan still thinks rates are too low, and he has no intention to stop raising rates. And history has shown the Fed doesn’t just stop raising rates on its own. Something happens. We don’t know what it will be, but I know that’s the thing that keeps me up at night.”
The Dow Jones industrial average shed 2.44 points, or 0.02%, to 10,834.88.
The broader gauges were narrowly mixed. The Standard & Poor’s 500 rose 0.22 of a point, or 0.02%, to 1,210.34. The Nasdaq composite index was down 1.78 points, or 0.09%, to 2,087.43.
Advancing issues outnumbered decliners by about 5 to 4 on the New York Stock Exchange.
Greenspan said Fed officials had been “confounded” by the bond market’s reaction to its monetary policy. Bonds have rallied as the Federal Reserve has raised short-term rates, sending their yields lower.
On Wednesday, the yield on the benchmark 10-year note rose to 4.16% from 4.10% on Tuesday as Greenspan signaled further monetary tightening ahead.
In other market highlights:
* The U.S. dollar rose against the yen and was little changed against the euro on Greenspan’s positive assessment of the U.S. economy. The dollar bought 105.36 yen, up from 104.42. The euro traded at $1.303, up from $1.302. Gold fell 40 cents an ounce to $425.50.
* Oil prices were volatile, climbing $1.07 to settle at $48.33 a barrel as traders sifted through the government’s weekly report on fuel inventories. Tensions in the Middle East and an OPEC forecast for rising demand contributed to the price rise. U.S. stores of crude and gasoline grew more than analysts had anticipated, but there was a higher-than-expected draw on distillate fuels, which include heating oil.
* The surge in the price of oil lifted energy-related shares. Exxon Mobil climbed $1.56 to $58.48. Its 2.7% gain was the steepest in the Dow average. ChevronTexaco added $1.33 to $59.50, and ConocoPhilips gained $2.93 to $104.31.
* Financial stocks dropped after the Fed chairman told Congress that borrowing costs remained “fairly low.” Bank of America declined 29 cents to $46.77, Wells Fargo slipped 54 cents to $60.76, and Wachovia subtracted 37 cents to $54.54
* Housing stocks soared, with the Dow Jones home construction index climbing 2.12%. The government’s latest report on housing construction showed a 4.7% rise in January, the highest level of activity in 21 years. The increase surprised economists, who had forecast a 3.7% decline.
Los Angeles-based KB Home climbed $2.43 to $115.57. D.R. Horton picked up $1.04 to $42.45, and Pulte Homes added $1.56 to $70.06.
* Shares of U.S. steelmakers climbed on speculation the producers might be acquisition targets for larger companies in Europe. U.S. Steel, the No. 1 U.S. steelmaker, surged $3.86 to $56.55 for the second-biggest advance in the S&P; 500. Nucor, the largest U.S. maker of steel from recycled metal, climbed $2.94 to $59.68.
* Coca-Cola added 65 cents to $43.30. The company said fourth-quarter profit, excluding a tax-related gain and insurance settlement, was 46 cents a share, 6 cents more than the average analyst estimate in a Thomson First Call poll.
* Network Appliance fell $2.63 to $31.73 for the second-biggest decline in the S&P; 500. The company said Tuesday that sales in its fiscal fourth quarter would be as low as $437.5 million, less than the average analyst estimate of $449.9 million in a Thomson survey.
* Cooper Tire & Rubber lost $2 to $19.50. The No. 2 U.S. tire maker said quarterly profit from continuing operations dropped 58% to $3.22 million on slower sales of tires and higher costs for materials such as rubber. Goodyear Tire & Rubber, the largest North American tire maker, also declined, falling 54 cents to $13.91.
Career Education dropped $2.02 to $37.19. The operator of adult schools said fourth-quarter profit was 57 cents a share, trailing the average analyst estimate of 66 cents, according to a Thomson survey. The company restated results for the past five years.
* Pfizer and Merck slid on concern that their credit ratings might be eroded by acquisition costs after the Wall Street Journal reported that the companies were likely to buy smaller competitors this year.
Pfizer fell 27 cents to $24.95 while Merck declined 33 cents to $29.02.
