Stocks fall on oil, inflation worries
Wall Street retreated sharply Friday as investors glumly absorbed a jump in oil prices and comments from two Federal Reserve officials suggested that unexpected economic growth could prompt an interest rate hike.
Stocks had spent most of the session in positive territory after Thursday’s pullback created fertile ground for bargain hunters. The market also got a lift from analyst upgrades of the automobile sector, which sent Ford Motor and General Motors higher.
But investors began to sell after St. Louis Fed President William Poole and Dallas Fed President Richard Fisher warned rates would go higher if inflation didn’t ebb. Wall Street has been looking for clues about how central bankers are viewing the economy and which way it might lead interest rates this year.
Investors also digested a handful of earnings reports and watched the movements of crude oil, which crossed $60 a barrel for the first time since early January. MasterCard also weighed on the market after it warned that 2007 margins might be weaker than they were last year.
“I do think that in order for this market to continue to rally, we’re going to need further confirmation of an economy that’s growing and the risks of inflation have abated,” said Peter Cardillo, chief market economist for Avalon Partners in New York.
The Dow Jones industrial average fell 56.80 points, or 0.5%, to 12,580.83 after pulling back Thursday amid concerns about the housing market.
Broader stock indicators also fell. The Standard & Poor’s 500 index dropped 10.25 points, or 0.7%, to 1,438.06, and the Nasdaq composite index was down 28.85 points, or 1.7%, at 2,459.82.
For the week, the Dow fell 0.6%, the Nasdaq dropped 0.7% and the S&P; declined 0.7%.
Bond yields rose sharply after speeches by the two Fed presidents, with the benchmark 10-year Treasury note climbing to 4.78% from 4.73% on Thursday.
Also influencing the fixed-income market were comments from Cleveland Fed President Sandy Pianalto that “recent data are encouraging” for the housing sector, according to prepared remarks.
Crude oil futures closed at $59.89 a barrel, up 18 cents, on the New York Mercantile Exchange. Oil settled at its highs of the year Thursday amid cold weather and a production outage in California.
“The market has been trading without a lot of economic information to this point, but generally oil prices are providing somewhat of a headwind,” said Lynn Reaser, chief economist with the investment strategies group at Bank of America.
Reaser said the market was searching for a reason to make a definitive move and had fluctuated on the release of corporate earnings and economic data. However, she believes that stocks are showing “very small moves” and that the market is “just treading water.”
“It could be back and forth until we see the next potential catalyst that could come from earnings or oil prices or economic activity or any developments at the Federal Reserve,” she said.
Earnings reports continued, with reports from companies including MasterCard and Weyerhaeuser. Earnings results have in recent weeks drawn mixed reviews from Wall Street, which is concerned about how well profits will hold up in the first quarter. Strong showings, such as that from Cisco Systems this week, have temporarily leavened stocks but failed to add to momentum.
In other market highlights:
* MasterCard, one of the world’s largest credit-card brands, was down $11.14, or 9.7%, at $103.60. The company’s fourth-quarter profit topped Wall Street expectations as strong consumer spending boosted transactions, but it warned 2007 margins might come in weaker than last year.
* Weyerhaeuser, a forest products company, swung to a profit from a loss in the fourth quarter and continues to feel pressure from the weak home-building market and lumber pricing. The stock fell 85 cents to $78.14.
* Ford and GM were upgraded on speculation that a restructuring of their healthcare obligations would be good for investors.
GM shares added $2.21, or 6.5%, to $36.01; Ford rose 18 cents, or 2.1%, to $8.73.
* Generic drug makers gained attention after a U.S. court ruled Sanofi-Aventis’ blood thinner Lovenox will lose patent protection in 2012. Teva Pharmaceuticals and closely held Amphastar Pharmaceuticals prevailed over the French drug maker, gaining the right to launch a generic version once the patent expires.
Sanofi fell 55 cents to $43.78, and Teva advanced 9 cents to $35.
