Stocks Slip Amid Angst Ahead of Fed Meeting
Stocks crept lower Monday as Wall Street steadied itself after last week’s losses and waited for the Federal Reserve’s meeting on interest rates. Fears that second-quarter earnings could disappoint also weighed on the market.
The Fed’s Open Market Committee is widely expected to raise rates for the ninth time in a year when it meets Wednesday and Thursday, but investors are waiting to see policymakers’ assessment of the economy, to be issued at the end of the meeting, for signals on whether the rate hikes will continue.
Until the Fed’s intentions are clear, investors are likely to do very little, said Jack Ablin, chief investment officer at Harris Private Bank in Chicago. “Is this the ninth inning or are we going into extra innings?” he said.
Bond yields slipped amid expectations that higher fuel costs would damp economic growth. Bond yields fall as their prices rise. Trading was somewhat subdued as the bond market also awaits the Fed’s assessment of the economy.
The yield on the benchmark 10-year U.S. Treasury note fell to 3.90% from 3.92% on Friday.
Wall Street looked past record high oil prices. A barrel of crude climbed as high as $60.95 before closing at $60.54, up 70 cents, on the New York Mercantile Exchange. The increase came amid concerns that oil supplies would not meet demand, worries about refining capacity and news that Iran’s new president would be focusing on its domestic market instead of exports.
Analysts said oil prices could climb even higher, but for the moment Wall Street didn’t seem particularly worried.
“The market seems to be shrugging off oil a little bit,” said Brian Gendreau, investment strategist at ING Investment Management. “Perhaps there’s a feeling that the sell-off Friday was overdone.”
The Dow Jones industrial average fell 7.06 points, or 0.07%, on Monday to 10,290.78 after dropping nearly 290 points Thursday and Friday combined.
Broader stock indicators also fell. The Standard & Poor’s 500 index slipped 0.88 point, or 0.07%, to 1,190.69, and the Nasdaq composite index declined 8.07 points, or 0.4%, to 2,045.20.
Another factor that may keep stocks nearly flat in coming sessions is that analysts have slightly lowered their expectations for second-quarter earnings, Ablin said. This is the first quarter of the last six in which expectations have fallen.
In Monday’s stock trading, some industries were strong while others faltered.
“It’s still a sector story,” Ablin said. “You’ve got very calm water, with a lot of stirring underneath the surface.”
Energy and utility stocks did well, thanks to increasing oil prices, but technology, healthcare and consumer staples lost ground on fears of an economic slowdown.
Among the day’s highlights:
* An index of stocks in the oil services sector closed at a record 149.12, adding 1.3%. The index has climbed 20% this year.
Baker Hughes and Weatherford International, both oil field contractors, gained after RBC Capital Markets analyst Kurt Hallead upgraded them to “outperform” from “sector perform,” citing the prospect of higher-than-expected earnings. Baker climbed $1.55 to $51.95 while Weatherford added $1.63 to $60.40.
* Cardinal Health tumbled $4.08, or 7%, to $56.43 for the steepest drop in the S&P; 500. The drug distributor said fiscal 2006 profit would miss its forecast for at least 12% annual growth because of higher spending and lower margins.
* Nike dropped $3.58 to $85.77. Sales this quarter are rising at the low end of its forecast of 7% to 9% growth, the company said.
* International Paper fell $1.02 to $31.43. The company said second-quarter profit would decline to 25 cents to 30 cents a share, less than analysts’ average estimate, because of falling demand for paper and boxes.
* ITT Educational Services, which operates technology schools, rose $5.78 to $51.68. The company said it was cleared of any wrongdoing in an investigation by the Justice Department. ITT was facing allegations that included inflating enrollment figures to receive more federal funding.
Education competitor Apollo Group added $3.02 to $80.23, while Career Education increased $2.02 to $38.36. Santa Ana-based Corinthian Colleges slipped 4 cents to $12.86.
* Broadcom, an Irvine-based maker of microchips for consumer electronics, retreated 73 cents to $36.06. The stock is unlikely to extend its 12% gain this year, partly because of “modest traction” of sales for mobile phones, CIBC World Markets analyst Allan Mishan wrote in a note.
