Stocks pull back on rate concerns
Wall Street stalled Thursday after a battery of reports indicated that the economy was stronger than expected and raised concerns that the Federal Reserve might be more aggressive about interest rates next year.
There has been speculation in the market that Fed policymakers might be ready to cut interest rates because the economy appeared to be moderating. Investors, however, believed that better-than-expected reports that measured existing-home sales, consumer sentiment and manufacturing in the Midwest lessened the possibility of a cut.
Moreover, the trio of reports suggested to some that the central bankers -- who have left interest rates unchanged in their last four meetings -- might even implement a rate hike to prevent the economy from growing too fast.
This caused a sell-off in bonds, pushing the yield on the benchmark U.S. Treasury note to 4.68% from 4.65% on Wednesday. Bond yields rise as their prices fall.
Losses were scaled back after the government’s $13-billion sale of five-year Treasury notes met strong demand, selling at a high yield of 4.70%, within earlier expectations.
Even so, the prospect of higher interest rates ahead stifled a stock market surge Wednesday that pushed the Dow Jones industrials past the 12,500 mark for the first time.
Although the prospect is that a rate cut isn’t in the offing, investors remain positive, analysts said. Still, volume was thin, typical for the week between Christmas and New Year’s, which means price swings can be exaggerated. The market’s real response could come next week when most of Wall Street gets back from vacation.
“You’d expect some kind of correction after these reports, and the fact we’re not getting one shows Wall Street is pretty bullish,” said Ryan Detrick, equity analyst at Schaeffer’s Investment Research. “With the market going up, and not too many sellers out there, we could stay at these levels until we get back next week.”
The Dow Jones industrial average fell 9.05 points, or 0.1%, to 12,501.52. The Standard & Poor’s 500 index fell 2.11 points, or 0.2%, to 1,424.73, while the Nasdaq composite index fell 5.65 points, or 0.2%, to 2,425.57.
Despite the drop during the session, major indexes are heading toward strong gains for the year. The Dow is now up 16.7% this year, while the Nasdaq has risen about 10% and the S&P; 500 is up 14.1%.
Oil prices rose after the Energy Department reported that U.S. crude supplies dropped by 8 million barrels last week. The price increase was limited, though, by rising gasoline and heating oil supplies and lagging demand for heating fuels because of mild weather.
Crude oil futures rose 19 cents a barrel to $60.53 on the New York Mercantile Exchange.
Meanwhile, the dollar was lower against other major currencies, while gold futures rose $6.60 an ounce to $634.10.
Among the reports released early in the session, the Conference Board’s index of consumer confidence climbed to 109 this month -- the highest since April. Economists expected a decline to 102.
Bolstering hopes that the housing slump has bottomed, the National Assn. of Realtors reported that sales of previously owned homes gained 0.6% to a 6.28 million annual rate in November -- besting economist projections for a decline.
Paul Desmond, president of Lowry’s Research Reports, said he was not worried about any short-term corrections for stocks. He believes that the big picture outlook for stocks is good, and that buyers will not run out of supply anytime soon.
“We have all the major measurements of investor demand being at new highs, and more importantly there is no evidence of any significant amount of selling going on,” he said. “We think the markets appear to be heading substantially higher next year.”
In other market highlights:
* Apple Computer lost 65 cents, to $80.87, after a report in the Financial Times said Chief Executive Steve Jobs was given stock options in 2001 without board authorization. Company records that appear to show the full board considered a grant of 7.5 million stock options were falsified, the newspaper reported, citing unidentified sources.
* Financial companies in the S&P; 500 lost 0.3% and were the biggest drag on the index among 10 industry groups. Higher interest rates reduce the value of bonds owned by banks, brokers and insurers, and sap demand for mortgages and loans.
Citigroup fell 53 cents, or 0.9%, to $55.88 for the steepest drop in the Dow average. Morgan Stanley, the world’s second-largest securities firm, slipped 41 cents to $81.59.
