Stocks Fall on Rate Fears
Interest rate worries sent share prices lower Tuesday on Wall Street after strong consumer confidence and home sales data signaled that the economy was holding up better than expected and suggested that the Federal Reserve had room for more rate increases.
Crude oil prices fell after an announcement by President Bush that he would waive regional clean-air specifications for summer-grade gasoline to attract more imports of fuel to the United States. Bush also said he would halt deposits of oil to the nation’s strategic petroleum reserve until fall, but analysts said the measure would have little effect on crude prices and certainly would not help make gasoline any cheaper.
Light sweet crude for June delivery settled 45 cents lower at $72.88 a barrel on the New York Mercantile Exchange.
The Dow Jones industrial average dropped 53.07 points, or 0.5%, to 11,283.25.
Broader stock indicators also fell. The Standard & Poor’s 500 index slipped 6.37 points, or 0.5%, to 1,301.74, while the Nasdaq composite index fell 3.08 points, or 0.1%, to 2,330.30.
The stronger-than-expected consumer confidence and housing numbers sent bond yields sharply higher, with the 10-year U.S. Treasury note rising to 5.07% from 4.98% on Monday, the highest since June 11, 2002, according to bond trading firm Cantor Fitzgerald.
The dollar edged higher against the yen after diving to a three-month low on Monday. The dollar ended at 114.78 yen in New York, up from 114.36.
But the U.S. currency continued to slide against the euro. The European currency was worth $1.242, a seven-month high, up from $1.241 on Monday.
The Conference Board said consumers shrugged off higher gasoline prices in April and sent its widely watched barometer of consumer confidence to its highest level in almost four years. The private research group said its consumer confidence index rose to 109.6 from a revised 107.5 in March.
April’s reading was the highest since the index touched 110.3 in May 2002. Analysts had expected a reading of 106.4.
Still, the survey was taken before the worst of the month’s gas price increases hit the pumps, which raised the possibility of a drop in confidence when the May survey is taken.
The National Assn. of Realtors, meanwhile, said sales of previously owned homes edged up slightly in March.
The strength in both numbers suggested that the Fed may be in a position to raise rates beyond the quarter-percentage-point increase widely expected at its next meeting in May.
Jack A. Ablin, chief investment officer at Harris Private Bank in Chicago, said that although the market earlier had thought the May increase would be the last, “I think a June tightening is on the table.”
In other market highlights:
* A gauge of utilities lost 1.3% for the worst performance among 10 industry groups in the S&P; 500. Higher bond yields make the utilities group’s dividend payouts less attractive. Duke Energy, the largest U.S. utility owner, retreated 70 cents to $28.60. Edison International of Rosemead fell 30 cents to $40.50. PPL, a Pennsylvania utility owner, slid 55 cents to $28.83.
* Yum Brands, the owner of restaurant chains including Taco Bell, rallied $1.74 to $51.34. The company lifted its 2006 profit forecast as first-quarter results exceeded analysts’ estimates. The company said it would earn at least $2.81 a share this year, up from an earlier estimate of $2.79. The stock’s rating was raised at CIBC World Markets and Piper Jaffray & Co.
* Burlington Northern Santa Fe led railroad stocks lower, sinking $5.35, or 6.2%, to $81.49. The company said full-year profit would be $4.81 a share. The new projection is less than the $4.85 expected on average by 10 analysts in a Thomson survey. Norfolk Southern fell $2.42 to $54.25.
* Mexico’s main share index jumped 0.8% to a record high of 20,360.61 after Felipe Calderon, the presidential candidate from President Vicente Fox’s National Action Party, took over the campaign lead in a Reforma newspaper poll. He surpassed former Mexico City Mayor Andres Manuel Lopez Obrador, who has been leading in all major polls for two years.
* Los Angeles-based Stamps.com plunged $8.90, or 23%, to $29.69 after its earnings report disappointed some investors. Pasadena-based Jacobs Engineering tumbled $9.24 to $83.43 on its quarterly report. Both stocks had soared in recent months.
* In commodities trading, copper soared more than 6%, the most in more than six years, as threats to supplies from Chilean and Mexican mines prompted more buying. Near-term copper futures in New York jumped 19.5 cents to a record $3.41 an ounce.
Gold rebounded after tumbling Monday. Near-term gold futures gained $10.40 to $631 an ounce. Silver also rebounded, rising 78.3 cents to $12.55 an ounce.
