Stocks Fall as Prices of Commodities Pull Back
Stocks ended mostly lower on Monday amid another sell-off in commodity-related shares and worries about interest rates.
The big event for markets this week is expected to be the congressional testimony of new Federal Reserve Chairman Ben S. Bernanke on Wednesday and Thursday.
On Monday, the Dow Jones industrial average eased 26.73 points, or 0.2%, to 10,892.32, but broader indexes suffered sharper losses.
The Nasdaq composite slumped 22.07 points, or 1%, to 2,239.81. The Russell 2,000 small-stock index fell 6.60 points, or 0.9%, to 710.53.
The Standard & Poor’s 500 was down 4.13 points, or 0.3%, to 1,262.86.
Losers topped winners by more than 3 to 2 on the New York Stock Exchange and on Nasdaq, although trading volume was slow as a major snowstorm kept some traders out of New York.
Stocks weakened after Sandra Pianalto, president of the Federal Reserve Bank of Cleveland, said January economic data suggested growth remained strong.
In recent weeks, short-term Treasury security yields have risen to five-year highs amid growing concern that the Fed might continue tightening credit longer than many investors had anticipated.
Bernanke is expected to shed more light on the Fed’s views on rates, inflation and the economy when he testifies before a House panel on Wednesday and a Senate panel on Thursday.
“It might be a tough couple of months coming up” for stocks, said Jason Trennert, chief investment strategist at ISI Group Inc. in New York. “Bernanke obviously is going to have a lot of constituencies pulling on him, and Wall Street wants him to be a little tougher on inflation,” which could entail more interest rate increases.
The Fed has raised its key short-term rate to 4.5% from 1% in the last 19 months. The next central bank meeting is March 28, and another quarter-point rate increase seems likely.
Although investors are hoping the economy stays healthy, the stock market’s strong rally in January had been based in part on expectations that the Fed was nearly done tightening credit.
Yields on Treasury securities were little changed on Monday, awaiting Bernanke. The two-year T-note yield, which hit a five-year high of 4.68% on Friday, slipped to 4.67% Monday.
The 10-year T-note was at 4.58% Monday, compared with 4.59% Friday.
Among the day’s market highlights:
* Many commodity-related shares continued their recent slide, as prices of oil, natural gas, platinum, gold and other key commodities pulled back.
Mining stocks were hit hard. Many had reached record highs in recent weeks amid optimism about global economic growth and consumption of copper, nickel and other metals.
Phelps Dodge slid $2.22 to $139.84, Inco lost $1.69 to $46.30, Rio Tinto dropped $5.05 to $188.79 and Aluminum China gave up $2.38 to $93.02.
Gold mining issues fell as near-term gold futures in New York slumped $11.20 to $539 an ounce. Barrick Gold dropped 46 cents to $28.07 and Glamis Gold was off 66 cents to $27.55.
In the energy sector, however, stocks were mixed even as near-term crude futures fell 60 cents to $61.24 a barrel in New York.
Noble Energy fell $1.35 to $40.99 and Berry Petroleum dropped $1.60 to $67.30, but Exxon Mobil inched up 17 cents to $59.60.
* Shares of many mortgage lenders declined after a Barron’s magazine article raised concerns about potential default rates on home loans that had low introductory rates but that could adjust sharply higher.
Among Southland-based lenders, New Century lost 71 cents to $37.63, FirstFed Financial lost 82 cents to $55.45 and Downey Savings was off 51 cents to $60.62.
* Home builders’ stocks also lost ground. William Lyon Homes fell $1.66 to $84 and Centex lost 76 cents to $66.10.
* Google led technology stocks lower, falling $16.91 to $345.70 as investors continued to sour on the stock. Apple Computer declined $2.60 to $64.71, Advanced Micro Devices slid $1.14 to $38.96, Cisco Systems gave up 21 cents to $19.55 and Broadcom lost 44 cents to $68.57.
Agilent Technologies lost $1.42 to $34.45 even though the company said fiscal first-quarter profit soared on a $1.84 billion gain from selling its semiconductor products business, and forecast 2006 results in line with estimates.
* Amgen eased 31 cents to $71.14. After regular trading ended, the Thousand Oaks-based biotechnology giant said it would borrow $4 billion via convertible bonds and use the proceeds to buy back $3 billion of its stock.
* Home improvement retailer Home Depot rose 48 cents to $39.70. The company is in talks to acquire 49% of Orient Homes, one of China’s top do-it-yourself chains, for more than $200 million, the Financial Times said.
* Starbucks slid 93 cents to $34.57. Brokerage UBS cut its rating on the stock to “neutral” from “buy,” citing “less upside” after recent gains.
