Stock Prices Retreat on Growth, Rate Worries
Wall Street posted a moderate decline Thursday, giving back part of the prior session’s gains as investors once again fretted about interest rates and the economy.
A slight rise in weekly unemployment claims met expectations of a weakening job market, but a greater-than-forecast drop in the Conference Board’s index of leading indicators stoked concerns about a drop-off in economic growth. Meanwhile, higher oil prices and rising bond yields also weighed on Wall Street’s mood.
The market continued its familiar pattern of up-and-down trading leading up to the Federal Reserve’s policy meeting next week. Stocks have steadied somewhat after a six-week slide amid worries that escalating core inflation could prompt the Fed to keep boosting rates, but the risk of an economic downturn has kept the market from advancing.
Although investors are virtually certain that the Fed will hike interest rates again, they have been nervous about the central bank’s opinion of inflation risks and unwilling to place bets while the outlook remains murky.
“The base-building process is going to take a couple months to complete,” said Steven Goldman, chief market strategist for Weeden & Co. “We’re going to see pockets of strength, pullbacks, rallies. We’re hopefully looking for a bottom from which to build a rally later this year.”
The Dow Jones industrial average closed down 60.35 points, or 0.5%, to end at 11,019.11, after tumbling as much as 93 points earlier in the session. The Dow gained almost 105 points Wednesday.
Broader stock indicators also were lower. The Standard & Poor’s 500 index slid 6.60 points, or 0.5%, to 1,245.60, and the Nasdaq composite index lost 18.22 points, or 0.9%, to 2,122.98.
Declining issues led advancers 2 to 1 on the New York Stock Exchange.
Bond yields remained inverted as prices dropped. The yield on the 10-year Treasury note climbed to 5.21% from 5.15% on Wednesday, while the 2-year yield rose to 5.23%, from 5.20%. When short-term yields are higher than long-term yields, it is often seen as a signal of investor pessimism about the economy.
Crude futures gained after the government reported only a small increase in gasoline stocks with the peak summer driving season getting underway. A barrel of light crude added 51 cents to settle at $70.84 in New York trading.
Strong manufacturing and export data catapulted Japan’s Nikkei-225 stock average 3.4% for its biggest one-day gain in six months. European markets followed suit, with Britain’s FTSE 100 adding 0.3%, Germany’s DAX index gaining 0.5% and France’s CAC-40 rising 0.6%.
With few economic reports to guide investors, stocks have drifted this week amid persistent fears that rising inflation could prompt the Fed to keep hiking rates despite a slowing economy. Thursday’s retreat erased more than half of Wednesday’s advance, leaving the major indexes barely changed so far this week.
“I’m not seeing today’s decline as particularly worrisome,” said Ken Tower, chief market strategist for Schwab’s CyberTrader. “I think it’s more profit taking and a wait-and-see attitude than a return of the real fear factor.”
In economic news, the Conference Board’s index of leading indicators declined 0.6% in May, slightly worse than the 0.5% drop projected by economists. Wall Street has been concerned that the economy might moderate too quickly.
The Labor Department said new unemployment claims grew 11,000 to 308,000 last week, slightly more than the 305,000 economists expected. The rise reinforced beliefs that the job market was weakening.
In other markets highlights:
* Qualcomm fell $2.82 to $41.38 after cellphone maker Nokia said it will cut development and production of handsets using code division multiple access technology, or CDMA. Nokia pays royalties to use CDMA patents by Qualcomm, the No. 2 maker of mobile-phone chips.
Freescale Semiconductor, supplier of the main chip for Motorola’s top-selling Razr mobile phone, lost $1.14 to $27.75.
* Bed Bath & Beyond slid $2.21, or 6%, to $34.71 for its biggest loss in six months. The retailer posted a 1.5% rise in profit and said it was spending more on advertising as the costs of paper and postage rose. The stock was downgraded by a Bear Stearns analyst, who said home furnishers would be hurt by the slowing housing market.
* Rite Aid fell 35 cents to $4.20 after the drugstore chain said first-quarter profit slumped 67% to $11 million on increased rent for new stores.
“This is a continuation of a trend we’ve seen. Things are a little more cautious in retail-land,” said John Caldwell of McDonald Investments in Cleveland.
* Novell jumped 55 cents to $6.55 after ousting its chief executive and head of finance after their plan to focus on selling Linux software failed to revive profit.
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Bloomberg News was used in compiling this report.
