Interest Rate Worries Depress Stocks
Continuing worries about inflation and interest rates left the stock market broadly lower Wednesday, although the slide was masked by gains in some big-name shares.
Treasury bond yields stabilized, while the dollar continued to rally, one day after the Federal Reserve surprised markets by expressing concern about inflation pressures.
Overseas, emerging-market stocks and bonds slumped. U.S. small stocks also fell sharply.
The Fed’s warning, as it raised its benchmark short-term interest rate for a seventh time since June, was followed Wednesday by the government’s report that consumer prices rose 0.4% in February, the fastest pace in four months.
Offsetting the inflation news was a steep decline in oil prices: Near-term crude futures in New York slumped $2.22 to $53.81 a barrel after the government said U.S. oil inventories had risen for a sixth straight week.
In after-hours trading, however, oil prices jumped anew as traders reacted to a fire at a BP oil refinery in Texas City, Texas.
On Wall Street, the Dow Jones industrial average eased 14.49 points, or 0.1%, to 10,456.02, its sixth loss in seven sessions. That followed a 94-point dive Tuesday after the Fed’s warning that “pressures on inflation have picked up in recent months.”
The broader Standard & Poor’s 500 index inched up 0.82 point, or less than 0.1%, to 1,172.53, and the Nasdaq composite index rose 0.88 point, also less than 0.1%, to 1,990.22.
Gains in a relative handful of large stocks helped put the S&P; and Nasdaq indexes in the black. Overall, more stocks fell than rose, in active trading. Losers topped winners by more than 3 to 1 on the New York Stock Exchange and by about 2 to 1 on Nasdaq.
An S&P; index of smaller stocks tumbled 1.2%.
The Fed’s statement Tuesday was viewed as a sign that it might begin to tighten credit more aggressively, in turn slowing the economy.
In the bond market, jitters about inflation drove the yield on the bellwether 10-year Treasury note to a nine-month high of 4.63% on Tuesday from 4.52% on Monday. The yield eased to 4.59% on Wednesday.
Some market pros said the jump in yields since mid-February had made bonds more appealing investments.
Others said the Fed’s warning about inflation should soothe bond investors because it meant the central bank was being vigilant about keeping price pressures from building further.
“The sell-off after the Fed move was rather illogical since, really, bond investors should be reassured that the central bank is determined to fight inflation,” said James Glassman, senior economist at J.P. Morgan Securities in New York.
The dollar rallied again, pushing the euro to a five-week low of $1.297 from $1.307 on Tuesday. Rising U.S. interest rates could attract more foreign investment, bolstering the dollar.
The buck’s gains were bad news for gold, which tends to suffer when the dollar strengthens. Near-term gold futures in New York fell $6.10 to a five-week low of $425.20 an ounce.
Other commodities also retreated. The Reuters-CRB index of 17 key commodity futures prices fell for a fifth day, losing 2.1% to 306.51. It has dropped 4.9% after reaching a 24-year high a week ago.
Among the day’s market highlights:
* Some nervous investors turned to drug stocks and other classic “defensive” shares. Johnson & Johnson gained $1.41 to $68.20, Alcon added 90 cents to $87.30 and Eli Lilly was up 94 cents to $52.78.
* Some semiconductor stocks rose modestly on optimism that global chip inventories are declining. Intel was up 37 cents to $23.39 and Texas Instruments gained 34 cents to $25.34.
Chip-equipment maker Applied Materials rallied 40 cents to $16.21 after saying it would start paying cash dividends at an annual rate of 12 cents a share.
* Pixar edged up 5 cents to $92.25. After the market closed the company said it would split its shares 2 for 1.
* Concerns about rising U.S. interest rates drove some investors out of emerging markets, which have been hot performers in recent years. Higher rates tend to make investors more risk-averse.
A Morgan Stanley index of emerging-market stocks fell for an eighth day, its longest decline since the Sept. 11, 2001, terrorist attacks. Key share indexes dropped 3.1% in Turkey, 1.6% in Mexico, 1.4% in Brazil and 1.4% in South Korea.
Investors also continued to sell U.S. junk bonds, driving the yield on a KDP Investment Advisors index of 100 junk issues to 7.11%, up from 7.01% on Tuesday and the highest since mid-September.
