Wall Street Retreats Amid Mixed Signals
Investors concerned about erratic oil prices and a slowing economy sent stocks lower Wednesday despite strong earnings from Cisco Systems and the Federal Reserve’s pause in raising interest rates.
The stock market fell as crude futures fluctuated widely during the session. After nearing record highs after the Energy Department reported falling crude inventories, a barrel of light crude fell sharply to settle at $76.35, up 4 cents, on the New York Mercantile Exchange.
Heavy-industry and transportation stocks sold off as investors grew worried that high energy prices would bite deeply into those companies’ profit margins.
Investors also remained concerned because the Federal Reserve, though it chose not to raise interest rates Tuesday, said it was willing to raise rates again should rising prices pose an increasing risk of inflation. A slowing economy combined with inflation is one of the more dismal scenarios for corporate profits.
The overall mix of news left most investors guessing, so though stocks rose in morning trading, they plummeted by late afternoon.
“It’s really such a mixed bag, and there’s so many strong signals that aren’t all that clear, and that’s why the market is bouncing around,” said Brian Bruce, director of global investments at PanAgora Asset Management Inc. in Boston.
“Between oil and interest rates and earnings, it’s going to take a little time to see which of these factors are sustainable and drive the market.”
The Dow Jones industrial average fell 97.41 points, or 0.9%, to 11,076.18 after having risen as much as 77 points early in the session.
Broader stock indicators also moved lower. The tech-focused Nasdaq composite index slipped 0.57 of a point, or 0.03%, to 2,060.28, though the index had gained 1.8% in early trading on the strength of Cisco’s earnings. The large-cap Standard & Poor’s 500 index lost 5.53 points, or 0.4%, to 1,265.95.
Declining issues outnumbered advancers by nearly 3 to 2 on the New York Stock Exchange.
Yields on U.S. Treasury bonds rose after a lackluster auction of benchmark 10-year notes combined with worries over inflation to put longer-dated bonds under renewed pressure.
The $13 billion in new 10-year notes were sold at a yield of 4.93% and a bid-to-cover ratio -- an indication of demand -- of 2.23. That is below the average of 2.42 in the last four auctions of new 10-year notes.
Yields on previously issued 10-year notes rose to 4.94% from 4.92% on Tuesday.
Because bond yields rise as their prices fall, the increase reflects concern that the Federal Reserve might not move as aggressively as previously thought in curbing inflation. Inflation erodes the value of bonds over time.
In economic news, wholesale inventories rose 0.8% in June, according to the Commerce Department, slightly less than May’s 0.9% increase. But sales are still growing faster than inventory gains, and that bodes well for economic growth.
However, economists remain concerned about oil prices as a counter to economic growth. High energy prices not only weigh on corporate expenses but also curb consumer spending at a time when the economy is starting to slow.
For investors, however, the surge in oil prompted buying in the energy sector, with ConocoPhillips climbing $1.27 to $68.90 and Chevron rising 28 cents to $67.48.
But transportation stocks suffered, with the Dow Jones transportation index off nearly 3%.
Among that index’s components, delivery company FedEx fell $3.99 to $98.40, American Airlines parent AMR lost 80 cents to $20.29 and railroad Union Pacific dropped $1.93 to $78.87.
“We’ve been seeing the weakness in transportation for quite a while, and I think today you’re starting to see that spread into the overall market,” said Michael Sheldon, chief market strategist at Spencer Clarke. “As oil stays at these levels, you’ll see more of that coming through in other stocks as well.”
In other market highlights:
* The 22% jump in Cisco’s second-quarter profit led the maker of computer networking systems to raise its full-year estimates, though at least one analyst warned that tech spending could falter if the economy slowed further. But overall, investors were pleased, and Cisco jumped $2.49, or 14%, to $19.78.
Networking and telecom companies also rose on the strength of Cisco’s earnings and outlook. Ciena climbed 20 cents to $3.69 and Juniper Networks gained 49 cents to $13.41.
* Heavy-equipment maker Caterpillar and retailer Home Depot had the biggest losses in the Dow Jones industrial average as companies affected most by a decelerating economy paced the retreat. “The market is now starting to price in the cumulative effect of an aging economy and all of these rate hikes,” said David Rolfe, who helps manage $575 million at Wedgewood Partners Inc. in St. Louis.
Caterpillar slumped $3.08, or 4.3%, to $68.52 . Home Depot slid 93 cents to $33.40, pushing down a gauge of retailers 1.7%.
* American International Group fell $1.19, or 2%, to $58.49 before the company’s second-quarter earnings report. The insurer said after the close of U.S. exchanges that second-quarter net income dropped 29% to $1.21 a share. Shares fell to $58.23 in after-hours trading.
* Hospira plunged $7.55, or 18%, to $35.25 for the steepest decline in the S&P; 500. The hospital supply company reported that second-quarter profit, excluding some items, was 43 cents a share. Analysts on average had estimated 56 cents a share.
