Stocks Slip Ahead of Fed Meeting
Stocks ended mostly lower Monday and bond yields edged up ahead of today’s meeting of Federal Reserve policymakers amid concern that the central bank might signal that it is becoming more concerned about inflation.
The possibility of a more aggressive Fed helped to stoke a rally in the dollar, driving the euro lower for the fifth session in the last six.
On Wall Street, the Dow Jones industrial average lost 64.28 points, or 0.6%, to 10,565.39, its lowest closing level since it ended at 10,551 on Feb. 1.
Among broader indexes, the Standard & Poor’s 500 dipped 5.87 points, or 0.5%, to 1,183.78, and the Nasdaq composite eased 0.28 point, or less than 0.1%, to 2,007.51.
Falling stocks outnumbered winners by more than 2 to 1 on the New York Stock Exchange, but losers had a relatively thin edge on Nasdaq.
Trading volume retreated from Friday’s levels, when the action was inflated by the quarterly expiration of stock index options and futures contracts.
Fed policymakers are expected today to raise their benchmark short-term interest rate to 2.75% from 2.5%, the eighth quarter-point increase since June.
Investors will be focused on the language of the Fed’s official statement, analysts said.
“There’s a potential for them to finally say something acknowledging the recent rise in inflation expectations,” said Ralph Axel, a U.S. government debt strategist at HSBC Securities USA Inc. in New York.
Any stepped-up warning about inflation could boost concerns that the Fed might begin to tighten credit at a faster pace -- say, in half-point rather than quarter-point increments. The goal would be to slow the economy and ease inflation pressures.
Before the Fed’s announcement today, the government is expected to report on February wholesale price inflation. The January increase of 0.8% for the “core” wholesale price index -- which excludes food and energy costs -- was the biggest in six years and well above expectations.
“The inflation fears are out there,” said Jay Suskind, head trader at Ryan Beck & Co. “There’s a lot of fear out there over higher interest rates.”
Treasury bond yields have surged since mid-February, driven partly by inflation concerns. The 10-year Treasury note yield ended at 4.52% on Monday, up from 4.50% on Friday. The yield was 3.99% on Feb. 9.
The jump in bond yields and the continuing rally in oil prices have fueled selling in the stock market in recent weeks. The Dow has fallen 3.4% since reaching a 3 1/2 -year high of 10,940 on March 4 and is down 2% this year. The Nasdaq index is down 7.7% this year.
Investors’ growing bearishness showed in the New York Stock Exchange’s latest “short interest” report Monday.
The NYSE said the number of shorted shares -- stock borrowed and sold, usually in a bet on declining prices -- jumped to a record 8.42 billion as of March 15, up 5.1% from mid-February.
Nervousness in stock and bond markets Monday didn’t spill into the currency market: The dollar, which might be expected to fall when stocks and bonds weaken, instead staged a strong rally against the euro. The European currency slid to $1.317 from $1.331 on Friday, the biggest decline in 2 1/2 months.
The dollar could get a boost if the market were to bet on a faster pace of U.S. interest rate increases, analysts said.
Also helping the dollar Monday was a warning from Hong Kong Monetary Authority Chief Executive Joseph Yam, who suggested that Asian central banks shouldn’t rush to boost euro holdings at the expense of dollar holdings.
The dollar’s weakness since 2002 has fueled more talk among foreign central banks about holding more of their reserves in currencies other than the buck.
But such a shift could “undermine the stability of international finance,” Yam said at a meeting of business executives in Hong Kong.
Among the day’s highlights:
* Financial stocks were lower on worries about interest rates. Citigroup fell $1.09 to $45.76, Washington Mutual lost 78 cents to $40.42 and Morgan Stanley slid 77 cents to $57.01.
* In the Internet sector, IAC/InterActiveCorp’s takeover bid for Ask Jeeves sent the latter’s shares up $4.43 to $28.67 and lifted shares of other Net search engines. FindWhat.com jumped 74 cents to $10.59; Mamma.com gained 19 cents to $3.45.
* Shares of General Motors, which fell to a 10-year low last week after the company slashed its 2005 profit estimate, rebounded $1.07 to $29.69. After the market closed, GM said its chief executive, Rick Wagoner, bought 50,000 shares Monday, raising his personal stake to nearly 193,000 shares, according to Bloomberg News data.
Wagoner said the purchase “demonstrates my confidence in the long-term prospects for GM.” But in the bond market, many GM debt securities continued to decline in value Monday.
