More Rate Worries Hit Stocks
Stocks drooped Tuesday after a robust reading on the economy, minutes of the most recent meeting of the Federal Reserve and higher oil prices cemented the feeling on Wall Street that additional interest rate hikes were a near certainty.
The market’s losses were modest, however. The Dow Jones industrial average fell 46.26 points, or 0.4%, to 11,069.06.
The mild sell-off began after the Conference Board said its index of leading economic indicators rose sharply last month. The index, a closely watched gauge of future economic activity, jumped 1.1% in January, following a 0.3% rise in December.
The January increase was almost twice as large as analysts expected, providing one more sign that “there’s growth still there in the economy and the Fed’s going to have to do its magic by continuing to raise interest rates,” said Kim Caughey, an equity analyst at Fort Pitt Capital Group.
The minutes of the most recent Fed meeting underscored the point. Policymakers said additional rate hikes might be needed to keep continuing inflation risks in check.
Although Wall Street had been expecting more credit-tightening by the Fed, the surprising strength of the economy this quarter means the central bank might raise rates higher than many investors had anticipated, analysts say.
Still, investors weren’t rushing for the exits Tuesday. The Standard & Poor’s 500 index fell 4.20 points, or 0.3%, to 1,283.04; the Nasdaq composite was off 19.40 points, or 0.8%, to 2,262.96.
Declining issues led advancers by roughly 9 to 7 on the New York Stock Exchange.
Worries about inflation and the Fed put upward pressure on bond yields. The yield on the 10-year Treasury note rose to 4.57% from 4.54% on Friday. Markets were closed Monday for Presidents Day.
Crude oil futures climbed after militants attacked oil pipelines in Nigeria. A barrel of light crude settled at $61.10, up $1.22, in New York trading.
Oil prices have rebounded from an eight-week low of $57.65 a barrel a week ago, reviving concerns about sustained inflation pressures from energy costs.
Wall Street will get another view of recent inflation trends today, when the government reports on the consumer price index for January.
In other market highlights Tuesday:
* Semiconductor-related stocks fell 1.5%, on average, for the biggest drop among 24 industry groups in the S&P; 500. Growth in industry capacity may “drag down pricing and bite into industry margins,” Citigroup’s chief U.S. equity strategist, Tobias Levkovich, wrote in a note to clients.
Applied Materials slumped 43 cents to $19.29, PMC-Sierra lost 60 cents to $10.33 and Texas Instruments was down 83 cents to $30.65.
* Federated Department Stores fell $1.23 to $70.40 after the company reported sharply higher fourth-quarter earnings but projected that 2006 earnings would be short of analysts’ estimates. Wal-Mart Stores dropped 36 cents to $45.74. It, too, forecast 2006 profit below analysts’ estimates.
* Carnival lost $1.72 to $51.83 after Credit Suisse analysts said the cruise line may earn 5 cents a share less this year than previously estimated because of fewer bookings and higher promotional spending.
* Foothill Ranch-based sunglass maker Oakley added 41 cents to $15.41 after Lehman Bros. upgraded the stock to “equal weight” from “underweight,” citing optimism about new Chief Executive Scott Olivet’s plans for the company.
* Real estate investment trust shares continued their recent rally, pushing a Bloomberg index of 157 REIT shares up 0.5% to a record high. The index is up 9.2% year to date.
