Four-Year High for Treasury Yield
Wall Street finished the week with a listless session Friday as a decline in big ticket factory goods did little to assuage investors’ economic worries and left the major indexes slightly lower. The market posted a modest loss for the week.
Bonds continued their sell-off, with the yield on the benchmark 10-year Treasury note rising to a four-year high of 5.23%, from 5.21% Thursday, on expectations the Federal Reserve will raise interest rates next week and perhaps again in August.
“People are more and more convinced the Fed has further to go, and that is why the (bond) market has sold off,” said Frank Hsu, managing director of global fixed income at Fimat USA in New York.
In economic news, durable goods orders dropped 0.3% in May after a sharp 4.7% drop the month before, according to the Commerce Department, the first back-to-back declines in two years. Economists expected orders to rise 0.4%. Corporate spending remained strong, however, giving investors hope that the economic slowdown may not be severe.
Yet with the Fed’s Open Market Committee widely expected to hike interest rates yet again at its meeting Wednesday and Thursday, Wall Street’s chronic anxiety about economic growth overshadowed trading, and likely will continue to do until the Fed’s decision is announced Thursday afternoon.
“The business spending within the durable goods report was encouraging once you got past the headline numbers,” said Jeff Kleintop, chief investment strategist for PNC Financial Services Group in Philadelphia. “But even with that, there’s a lot of investors, if they’ve got an idea for a trade, they’re not going to do it until you get past the Fed meeting.”
The Dow Jones industrial average fell 30.02 points, or 0.3%, to 10,989.09.
Broader stock indicators were just below the flatline. The Standard & Poor’s 500 index lost 1.10 points, or 0.1%, to 1,244.50, while the Nasdaq composite index dropped 1.51 points, or 0.1%, to 2,121.47.
Oil prices edged higher as traders remained concerned about rising international demand, tight refinery capacity and continued unrest in the Middle East. Crude rose 3 cents a barrel, to $70.87, in New York trading.
With energy prices potentially stirring inflation, the Fed has become increasingly hawkish on raising rates to combat rising prices, which has led some on Wall Street to consider whether policymakers may go with a half percentage point increase in the nation’s benchmark rate. Most observers, however, predict another quarter percentage point hike, along with a statement saying the Fed may still raise rates down the road.
“If it’s just the quarter point, and the Fed still says it could raise, then we could be in for a tough summer,” said Jay Suskind, head trader for Ryan Beck “The only thing that could save the summer is corporate earnings, whether they come in strong enough so that the economy can weather the rate hikes, or weak enough for the Fed to stop raising.”
Concerns about rates dominated the week’s trading, increasing volatility but ultimately leaving stocks little changed. For the week, the Dow slipped 0.2%, the S&P; 500 lost 0.6% and the Nasdaq fell 0.4%.
In other market highlights:
* Wells Fargo and other banks fell in anticipation of higher borrowing costs. Wells Fargo slid 90 cents to $65.51. Citigroup, the biggest U.S. bank, slumped 43 cents to $47.74.
Comerica tumbled $2.14 to $50.70. The rating of Michigan’s largest bank was lowered to “sell” from “neutral” by Merrill Lynch analyst Heather Wolf. She said Comerica was most vulnerable to higher credit costs reducing earnings.
* Qualcomm lost ground after analyst Ehud Gelblum of JPMorgan lowered shares of the No. 2 maker of chips for mobile phones to “neutral” from “overweight.” Talks about renewing a license agreement with Nokia, the world’s biggest mobile-phone company, “could very likely end in a stalemate with the companies failing to agree to new terms,” he wrote. The shares lost $1.88, or 4.5%, to $39.50.
* Neurocrine Biosciences subtracted $3.96, to $9.85, after Pfizer ended an agreement to sell Neurocrine’s sleeping pill a month after U.S. regulators rejected the medicine.
* Software maker Oracle reported after the bell Thursday that its quarterly earnings jumped 27%, beating Wall Street’s forecasts by a penny per share after one-time charges for acquisition expenses. Revenue surged 25% for the quarter, and the company’s forecast for the current quarter met analysts’ projections. Oracle rose 57 cents to $14.90.
* Anadarko Petroleum dropped $3.49, or 7.2%, to $44.90 after the company said it would acquire two rivals, Kerr-McGee and Western Gas Resources, for a total of $21.1 billion. Kerr-McGee soared $18.31, or 36.4%, to $68.61 on the news, while Western Gas surged $18.76, or 45.9%, to $59.67.
The merger gave a boost to other energy stocks, with Southwestern Energy climbing $3.12 to $30.09 and Consol Energy jumping $4.50 to $42.81.
* Amusement park operator Six Flags plunged as the company said it might have problems meeting its credit obligations and was looking to sell six of its properties, including Magic Mountain in Valencia. Six Flags sank 25.5%, or $1.90, to $5.55.
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Bloomberg News and Reuters contributed to this story.
