Economic News Stalls Stocks
Stocks ended mostly lower for a third straight session Thursday, as two Federal Reserve reports on regional manufacturing caused concern the economy is slowing and inflation is accelerating in the wake of Hurricane Katrina.
The evidence of weakness in the Philadelphia area and New York state weighed on the market even as oil prices pulled back.
“We’re going to see some really messy economic data in the next couple of months, so it’s not going to be real clear what the economy is doing,” said John Waterman, who helps manage about $8 billion as chief investment officer at Rittenhouse Asset Management. “What Katrina does is add uncertainty.”
The Dow Jones industrial average inched up 13.85 points, or 0.1%, to 10,558.75, but falling stocks outnumbered winners by modest margins on the New York Stock Exchange and on Nasdaq.
Broader stock indexes were mixed. The Standard & Poor’s 500 added 0.57 point to 1,227.73; the Nasdaq composite eased 3.18 points, or 0.2%, to 2,146.15.
Crude oil futures fell 34 cents to $64.75 a barrel in New York trading after surging $1.98 on Wednesday, but worries about energy costs continued to dog the markets.
Both the Philadelphia Fed and the New York Fed, in regional economic reports issued Thursday, reported that factory activity slowed this month while manufacturers faced rising price pressures.
The reports riled the Treasury bond market, sending yields higher, and helped drive gold futures to a 17-year high, up $5.70 to $455.50 an ounce.
“Investors put together all the pieces of data today and the trump turned out to be inflationary concerns,” said Colin Lundgren, head of institutional fixed income at RiverSource Investments in Minneapolis, which oversees $100 billion of bonds. “There is good reason to think it will get worse before it gets better, with the big culprit being higher energy prices.”
The yield on the benchmark 10-year Treasury note rose to 4.21% from 4.17% on Wednesday. The yields on bonds rise as their prices fall.
Some bond traders had been hoping that Fed policymakers would pause in their credit-tightening campaign because of the risk of an economic slowdown post-Katrina. But inflation risks could force the Fed’s hand, many analysts say.
The Fed meets Tuesday, and most economists believe it will raise its benchmark short-term rate from 3.5% to 3.75%.
Chris Johnson, manager of quantitative analysis at Schaeffer’s Investment Research in Cincinnati, worried that some investors would be disappointed if the Fed raised rates.
“My fear here is that there truly are expectations that the Fed is done, that the game is over,” Johnson said. “I don’t think that’s going to be the situation.”
Among Thursday’s market highlights:
* Some industrial issues were weak on concerns about cost pressures from energy and other raw materials.
Dana sank $2.92, or 23%, to $9.86, for the steepest loss in the S&P; 500. The biggest U.S. maker of axles for light trucks cut its 2005 profit forecast in half because of higher costs for materials such as steel.
Other declining issues included Caterpillar, off 56 cents to $57.74; Deere, down 84 cents to $62.64; and Eaton, off 47 cents to $64.39.
* Northwest Airlines plummeted 99 cents to 88 cents while Delta Air Lines added 4 cents to 75 cents a day after rising labor and fuel expenses prompted both to seek Chapter 11 Bankruptcy Court protection from creditors.
* McDonald’s climbed $1.09, or 3.4%, to $33.45 for the biggest gain in the Dow. The world’s largest restaurant chain said fewer than 100 of its restaurants in the Gulf Coast region remain closed.
* Bear Stearns, the fifth-biggest U.S. securities firm, fell as the company’s fixed-income revenue dropped in its fiscal third quarter. The stock lost $2.60 to $102.90. Revenue from trading bonds, which accounts for 41% of the company’s total, fell 4% to $739.2 million. Net income in the period ended Aug. 31 was $2.69 a share, more than the $2.38 average estimate of analysts in a Thomson Financial survey.
* Time Warner rose 58 cents to $18.50 on reports the company is in talks with Microsoft to sell a stake in AOL as part of a broader agreement that also may include AOL replacing Google Inc.’s search engine with Microsoft’s product. Microsoft slipped 4 cents to $26.27.
* Chinese Internet search firm Baidu.com rose 68 cents to $82, stabilizing after plunging 28% on Wednesday, when two brokerages said the stock was overpriced.
* UICI climbed $5.03 to $36.11 after buyout firm Blackstone Group agreed to purchase the health insurer for $1.71 billion. Blackstone, along with buyout units of Goldman Sachs Group and Credit Suisse Group, would pay $37 a share, 19% more than UICI’s closing price Wednesday.
