Stocks Stage a Broad Pullback
Stocks pulled back Wednesday after aluminum producer Alcoa kicked off earnings season with a weaker-than-expected profit report and minutes from the Federal Reserve’s last meeting stoked concerns about the economy.
Stocks fell sharply Wednesday afternoon when a small plane crashed into a New York apartment building, but they rebounded as it became apparent that it was not a terrorist attack. (The plane was owned by New York Yankees pitcher Cory Lidle, who was killed in the crash.)
The Fed minutes showed that policymakers were still “quite concerned” about inflation -- dashing hopes that the central bank would soon consider lowering interest rates and raising questions about the well-being of the economy.
“These minutes give no hint that the Fed is going to ease,” said Ethan Harris, chief U.S. economist at Lehman Bros. Holdings. “The markets have this kind of dovish Fed in mind that is itching to pull the trigger to cut rates. Some of the talk in the stock market about the Fed giving them a little present in the form of a rate cut is overly optimistic.”
The Dow Jones industrial average fell 15.04 points, or 0.1%, to 11,852.13.
Broader stock indicators also moved lower. The Standard & Poor’s 500 index declined 3.47 points, or 0.3%, to 1,349.95, and the Nasdaq composite index lost 7.16 points, or 0.3%, to 2,308.27.
Bond yields rose on the Fed minutes, with the benchmark 10-year Treasury note climbing to 4.78% from 4.75% on Tuesday. Bond yields rise as their prices fall.
Crude oil futures settled to their lowest point of the year, falling 93 cents to $57.59 a barrel in New York trading. The decline reflects increasing doubts about whether members of the Organization of the Petroleum Exporting Countries will be able to agree on an immediate production cut.
The notion that the economy is slowing adequately to reduce inflation has given stocks a boost in recent weeks, helping push the Dow to a string of record-setting sessions. On Tuesday, the Dow set its fourth record close in two weeks, ending at 11,867.17.
The Fed minutes showed that a slowing economy and falling energy prices guided its decision to hold interest rates steady last month. In August, the Fed wrestled with its decision before ultimately holding rates steady. Before that, it had raised short-term interest rates 17 straight times since mid 2004 as it sought to curb inflation. The minutes released Wednesday indicated that sizable concerns remained about inflation, though the threat was expected to dissipate as the economy slowed.
Wednesday’s decline occurred despite a report that the federal budget deficit fell to about $247.7 billion in 2006, its lowest level in four years.
Alcoa’s quarterly report, which traditionally marks the start of earnings season, fueled concerns among some traders that corporate profits have not held up as well as hoped amid a slowing economy.
“I don’t think today’s events are a sign of a trend. I think in the aggregate, [earnings] will still beat the consensus expectations,” said Steven Goldman, chief market strategist at Weeden.
Alcoa said seasonal slowness and lower metal prices hurt third-quarter results. The news displeased investors despite an 86% increase in profit. Alcoa closed down $1.44 at $26.85.
In other market highlights:
* Monsanto, which makes herbicide and other agricultural products, said its fiscal fourth-quarter loss widened as sales fell in its seeds and genomics segment. The company, which closed down $2.46, or 5.3%, at $43.95, issued a fiscal 2007 forecast that came in well below Wall Street analysts’ expectations.
* Shares of Los Angeles-based CB Richard Ellis surged in after-hours trading after the announcement that it would join the S&P; 500, replacing BellSouth.
Joining the index is expected to support the company’s stock price, as managers of funds that track the index are likely to purchase its shares. The commercial real estate company rose 31 cents to $24.23 in regular trading, and climbed to $25.86 after the close.
BellSouth is being replaced because it is being acquired by AT&T.;
* Mutual fund manager Legg Mason closed down $18.16, or 17.2%, at $87.15 after saying that its fiscal second-quarter profit would fall well short of Wall Street’s forecast. The warning is the company’s third in a row since gaining control of Citigroup’s asset-management business late last year.
* Genentech, the biotechnology company, dropped $1.45 to $84.15 after third-quarter sales of several of its drug treatments missed analysts’ forecasts. Its overall profit was up 58%, aided by a strong start for an eye-disease drug.
* Gannett fell $1.49 to $56.23. The biggest U.S. newspaper publisher said third-quarter profit declined 12% because of stock option expenses and a drop in classified ad sales. Sales gained 2.7% to $1.91 billion, less than the $1.94 billion expected by analysts in a Thomson Financial survey.
* General Motors rose 23 cents to $32.13. The automaker is close to an agreement to provide financial aid to parts maker Delphi and avert a strike that would cripple GM’s production, people with knowledge of negotiations with Delphi creditors said.
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Bloomberg News and Reuters were used in compiling this report.
