Stocks Fall on Economic Forecast
Stocks declined Wednesday despite positive corporate news and lower oil prices, as the Bush administration raised its inflation forecast and said the nation’s economy would probably grow at a slightly slower pace than projected six months ago.
The White House expects the economy to continue growing at a 3.4% annual rate, down from the 3.5% pace predicted in December. In addition, higher energy prices prompted the administration to increase its inflation forecast for the year. The report was a further distraction for investors, who already were leaning toward the sidelines in anticipation of congressional testimony today by Federal Reserve Chairman Alan Greenspan.
Still, analysts remained optimistic about the market’s long-range outlook.
“I think everybody is already accustomed to the fact that the economy is not going to grow at the same fast clip it did a few years ago. This move, which is just a tenth of a point, is not a big surprise for most people, or we would’ve seen a bigger sell-off at the close,” said Thomas F. Lydon Jr., president of Global Trends Investments in Newport Beach.
The Dow Jones industrial average ended down 6.21 points, or 0.1%, at 10,476.86 after spending most of the day in positive range.
The broader gauges also closed lower. The Standard & Poor’s 500 index was down 2.59 points, or 0.2%, at 1,194.67. The Nasdaq composite index fell 6.98 points, or 0.3%, to 2,060.18.
The yield on the benchmark 10-year U.S. Treasury note rose to 3.94%, from 3.9% Tuesday, on speculation that Greenspan will tell Congress that inflation is still a threat. Bond yields rise as their prices fall.
Crude oil skidded $1.22 to settle at $52.54 a barrel in New York trading, reversing gains made after a weekly government report on fuel inventories showed an unexpected 3-million-barrel reduction; analysts had expected an increase. Gasoline inventories were also down, though supplies of distillate fuels rose.
In other market highlights:
* Intel, which updates its second-quarter forecast today, rose 24 cents to $27.10. The computer chip maker may say sales this quarter will reach $9.2 billion, the top of its forecast range, a Credit Suisse First Boston analyst wrote in a note this week.
Texas Instruments gained 62 cents, to $27.90, after raising its second-quarter earnings forecast, citing higher demand for semiconductor products and seasonal growth for educational calculators.
* Internet search engines Google and Yahoo dropped amid concern that prices advertisers paid to buy search-engine keywords fell from last month, according to a report Tuesday by a San Francisco-based market research firm.
Google lost $13.56, or 4.6%, to $279.56, its steepest decline since November. The stock has more than tripled since its initial public offering in August. Yahoo retreated 81 cents to $36.63.
* Caterpillar helped keep the Dow average from falling further, adding $2.05 to $96.58. The world’s largest maker of earthmoving equipment raised its quarterly dividend by 22%, to 50 cents a share, and announced a 2-for-1 stock split. Prudential Equity Group boosted the stock to “overweight” from “neutral weight.”
* ImClone Systems surged 17%, or $5.11, to $35.27, after a late-stage study confirmed that the biotechnology firm’s Erbitux drug, when used in combination with radiation therapy, prevents the spread of head and neck cancer more effectively than radiation therapy alone. Erbitux is already approved by the Food and Drug Administration to treat colorectal cancer. In addition, financier Carl Icahn filed for clearance to invest between $100 million and $500 million in the company, including shares already acquired.
