Renewed Anxiety on Rates Pushes Down Stock Prices
Wall Street had a renewed case of interest rate anxiety Thursday, with stocks losing ground as strong economic news and a jump in oil prices heightened worries about inflation.
A 5.2% upswing in sales of existing homes in February eased worries about a slowdown in the housing market but fed fears that the Federal Reserve would continue boosting interest rates to stave off price inflation. Fed policymakers meet Tuesday.
Some investors also fretted about a Labor Department report that 302,000 workers applied for unemployment benefits last week, down 11,000 from the week before and marking the first decline in a month. The implied job growth added to Wall Street’s inflation and interest rate concerns.
The unemployment numbers increase the probability the Fed’s key short-term rate will rise to 5%, said Robert Tipp, chief investment strategist for Prudential Fixed Income. The Fed’s benchmark currently stands at 4.5%.
The Dow Jones industrial average fell 47.14 points, or 0.4%, to 11,270.29. On Wednesday, the Dow rallied 81.96 points to reach 11,317.43, its highest level since May 21, 2001.
Broader stock indicators also slipped Thursday. The Standard & Poor’s 500 index lost 3.37 points, or 0.3%, to 1,301.67, and the Nasdaq composite eased 3.20 points, or 0.1%, to 2,300.15.
Losers edged winners on the New York Stock Exchange.
Bond yields rose after the National Assn. of Realtors said sales of existing homes totaled 6.9 million last month, even as mortgage rates rose. Economists had expected sales of 6.5 million homes.
The 10-year U.S. Treasury note rose to 4.74% from 4.70% on Wednesday. Yields on bonds rise as their prices fall.
Crude oil futures surged to near $64 a barrel in what some traders said was a delayed reaction to a government report Wednesday that U.S. oil and gas inventories fell last week. A barrel of light crude ended at $63.91, up $2.14, on the New York Mercantile Exchange.
“You’ve got good home sales figures showing some decent economic growth, and you’ve got crude oil prices up. You put those together, and that creates worries that the Fed is going to keep going on rates,” said Stuart Freeman, chief equity strategist for A.G. Edwards & Sons.
Among the day’s market highlights:
* The Dow Jones transportation average dropped from a record, plunging 91.68 points, or 2%, to 4,523.26, its biggest fall since June, amid rising oil prices and a disappointing forecast from YRC Worldwide.
YRC, which changed its name from Yellow Roadway this year, plunged $6.73 to $38.56, the steepest drop among the transportation index’s components and YRC’s largest fall since February 1998. The trucker said it expected first-quarter profit of 65 cents to 70 cents a share, down from its January forecast of $1 to $1.05, because of a drop in orders from retailers and because of rising competition.
Ryder System, the biggest U.S. truck-leasing company, lost $1.35 to $44.56. Railroad Norfolk Southern slid $1.84 to $52.89.
* Carnival blamed higher fuel costs as it reported a 19% drop in first-quarter profit. Shares of the world’s No. 1 cruise operator fell $2.54 to $47.49.
* Energy companies rallied as oil prices advanced. Valero Energy gained $1.34 to $58.80. Murphy Oil, the oil producer and refiner that operates filling stations at more than 850 Wal-Mart Stores locations, added $1.17 to $48.37.
* The home-sales data and better-than-expected quarterly profit from KB Home helped send an S&P; gauge of 16 home builders up 3.6%. Los Angeles-based KB Home rose $3.23 to $67.82. The company late Wednesday reported first-quarter profit that beat expectations.
* Canadian coffee and doughnut chain Tim Hortons priced its initial public stock offering at $23.16 a share, up from a previous target of $18 to $20 a share. The stock is expected to begin trading on the New York and Toronto stock exchanges today under the symbol THI.
Wendy’s International bought Tim Hortons in 1995 and will continue to own about 85% of the common stock. Wendy’s rose 54 cents to $65.01 before the pricing was announced.
* Jabil Circuit surged $4.51 to $42.75 for the biggest gain in the S&P; 500. The maker of cellphones for Nokia and Philips forecast profit this quarter of 43 cents a share on sales of as much as $2.6 billion. The average estimate of analysts surveyed by Thomson Financial was for profit of 41 cents on sales of $2.32 billion.
* Yahoo and Level 3 Communications rallied after analyst upgrades. Yahoo gained $1.08 to $31.83 after its shares were raised to “buy” from “neutral” by a UBS analyst, who cited increases in online advertising.
Level 3 added 57 cents, or 17%, to $4.01. The operator of a long-distance phone and data network was raised to “outperform” from “underperform” by a Bear Stearns analyst, who said the company would benefit from less competition.
* Microsoft lost 30 cents to 26.85, extending Wednesday’s 2.1% slide. The company said this week that the release of the new version of its Windows software program would be delayed.
