Stocks Fall as Jobs Data Fan Inflation Worries
Wall Street pulled back Thursday as inflation and interest rate concerns again gave some investors pause. A drop in oil prices failed to turn the mood.
Investors grew jittery after the government said new claims for unemployment benefits fell by 20,000 last week from the previous week’s 298,000 -- a far sharper drop than economists had expected.
The decline in claims revived worries that companies may have to offer higher pay to attract workers and that higher wages could lead to larger price increases for goods and services. That could compel the Federal Reserve to continue tightening credit beyond the one or two additional interest rate hikes Wall Street already expects.
“Inflation is the skeleton in the closet,” said William Greiner, who oversees $7 billion as chief investment officer at UMB Financial Corp. in Kansas City, Mo.
Differing inflation readings have caused market swings in the last week. Shares dropped Feb. 17 after January wholesale prices rose more than expected.
But the market rallied Wednesday, driving the Dow Jones industrial average to a 4 1/2 -year high, after the government’s report on January consumer prices indicated relatively tame inflation excluding food and energy costs.
On Thursday, the Dow took back almost all of Wednesday’s gain, falling 67.95 points, or 0.6%, to 11,069.22.
Broader stock indicators also declined, although modestly. The Standard & Poor’s 500 eased 4.88 points, or 0.4%, to 1,287.79. The Nasdaq composite slipped 3.85 points, or 0.2%, to 2,279.32.
Losers topped winners by small margins on the New York Stock Exchange and on Nasdaq.
The jobless-claims report helped push bond yields higher, with the yield on the 10-year Treasury note rising to 4.56% from 4.52% on Wednesday.
A poorly received auction of $14 billion of five-year Treasury notes also hurt the bond market. The notes sold at a yield of 4.62%, above expectations. Traders said demand was weak.
The day’s good news was a further drop in oil prices, with near-term futures in New York falling 47 cents to $60.54 a barrel after the government’s weekly report on U.S. inventories showed another rise.
In other market highlights:
* GM lost 60 cents, or 2.8%, to $20.59. Moody’s Investors Service this week cut the automaker’s debt rating for the fourth time in a year. Ford Motor slid 13 cents to $8.17.
* Brokerage stocks lost ground on interest rate worries. Merrill Lynch lost 41 cents to $76.54 and Lehman Bros. slid $1.72 to $147.
But mortgage finance giant Fannie Mae jumped $1.23 to $57.14 after investigators implicated its former chief executive and chief financial officer in its $11-billion accounting scandal. Investors were relieved that no current executives were named.
* Shares of steel companies gained after a Goldman Sachs analyst said the metal’s price is rising in China and Europe and boosted the group to “attractive” from “neutral.” U.S. Steel surged $2.05 to $57.84 and Los Angeles-based Reliance Steel & Aluminum rose $1.72 to a record $86.52.
* Pleasanton, Calif.-based Safeway had its best rally since May after its fourth-quarter profit beat estimates. Safeway rose $1.10 to $24.35.
* Sherwin-Williams lost $1.15 to $42.05, extending Wednesday’s 18% plunge. It may cost Sherwin-Williams and two other companies as much as $4.5 billion to clean 246,000 homes tainted with lead paint in Rhode Island after a jury ruling, JPMorgan said in a report.
