Stocks Suffer Broad Pullback
Wall Street pulled back sharply Monday as a lack of economic news left investors hesitant to buy stocks ahead of the Federal Reserve’s interest rate decision next week.
Falling commodity prices and some strength in the U.S. dollar eased the inflation picture, but weakness in oil- and metal-related stocks pulled the market lower. Investors also found little direction without any new economic data to feed speculation over whether the Fed will hike rates again at its two-day meeting June 28-29.
Brian Gendreau, investment strategist for ING Investment Management, said investors appeared confused about what was driving the market now that hopes for a soft landing -- for example, a gentle rise in interest rates that would contain inflation but preserve the economy’s momentum -- were running dry.
“I think when you get swings like this back and forth, it’s indicative of a wide divergence of opinions in the market,” Gendreau said.
He believes that the market could see sharp moves in either direction but will ultimately continue drifting sideways until there is more clarity on interest rates.
Some stocks got a boost from news of a joint venture between Nokia Corp. and Siemens. But the market turned lower at midday after the National Assn. of Home Builders said its June index of new-home sales dropped to its lowest point since April 1995.
The Dow tumbled 72.44 points, or 0.66%, to 10,942.11, after sliding as much as 107 points earlier. Last week, a two-day bounce broke nearly six weeks of heavy selling and carried the Dow 1.13% higher for the week.
Broader stock indicators also declined. The Standard & Poor’s 500 index dropped 11.40 points, or 0.91%, to 1,240.14, and the Nasdaq composite index fell 19.53 points, or 0.92%, to 2,110.42.
Bonds extended last week’s decline, with the yield on the 10-year Treasury note inching up to 5.14% from 5.13% on Friday. Short-term bond yields remained above long-term rates, signaling greater expectations of an economic slowdown.
Overseas markets continued showing some improvement as Wall Street leveled off from its recent retreat. Japan’s Nikkei stock average slipped 0.13%; Britain’s FTSE 100 gained 0.51%, Germany’s DAX index rose 1.18% and France’s CAC-40 was higher by 0.73%.
Elsewhere, the U.S. dollar advanced on the Japanese yen and the euro. Gold futures tumbled $9.20 an ounce, to $568.80.
Crude futures slipped despite persistent worries about a potential supply cutoff amid rising tension over Iran’s nuclear arms program. A barrel of light crude slid 90 cents to settle at $68.98 in New York trading.
Trading was expected to be skittish this week with few economic reports due. Investors probably will pay attention to new-home starts and weekly unemployment claims for updates on the health of the housing and job markets, but those figures will have little effect on the market’s obsession with inflation and interest rates.
The sole piece of economic news Monday came from the home builders association, which said June new-home sales slid to 42 from 46 the previous month. Readings below 50 mean a greater proportion of home builders anticipate weak results.
But with second-quarter earnings season approaching next month, Wall Street will start focusing on companies’ warnings amid mounting concerns that higher interest rates and soaring energy costs might be eating away at corporate profits.
“I don’t see much happening until we get into earnings season,” said Peter Cardillo, chief strategist at S.W. Bach & Co. If few companies warn about their results, “I think that would be a good indication we could move higher once the earnings season goes into full gear.”
In other market highlights:
* Every home-building stock in S&P; indexes declined. Lennar dropped $1.01 to $43.88 and Toll, the largest U.S. luxury-home builder, lost 63 cents to $26.54. KB Home of Los Angeles retreated 66 cents, to $44.81.
* As prices for copper, gold and aluminum declined, so did shares for companies linked to these commodities. Alcoa fell 99 cents to $29.10. U.S. Steel lost $1.74 to $61.20. Freeport-McMoRan Copper & Gold, which owns the world’s biggest gold mine and second-largest copper mine, fell $1.33 to $46.97. Phelps Dodge, another copper producer, declined $3.03 to $77.07.
* General Motors advanced for the biggest gain in the Dow after Delphi, a former unit of the automaker, expanded its buyouts of union workers.
GM added 75 cents to $26.35 after parts supplier Delphi said Saturday that about 8,000 members of the International Union of Electrical Workers-Communication Workers of America were eligible for buyouts. The agreement is part of a plan at GM and Delphi to cut jobs while avoiding strikes.
* Nokia rose 12 cents to $20.09 and Siemens surged $4.10 to $83.90 after the companies announced that they were combining their mobile network operations in a joint venture that was expected to generate about $20 billion in annual revenue and help them compete with Ericsson.
* Electronics retailer Circuit City Stores swung to a profit from a year-ago loss, helped by store improvements and strong sales of flat-panel televisions. Circuit City nonetheless slid 85 cents to $28.63.
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Bloomberg News was used in compiling this report.
