Fed fears of slowdown take wind out of rally
Stocks gave up substantial early gains Wednesday to end the first trading session of 2007 mixed after minutes from the Federal Reserve’s last meeting expressed concern about weak points in the economy, particularly housing.
Commodity prices plummeted, led by crude oil.
Although the minutes from the Fed’s Dec. 12 meeting said inflation continued to moderate, the central bank also cited the “subdued tone” of some recent economic data. The minutes described residential construction as very weak.
The release of the report sapped strength from the stock market after an early surge pushed the Dow Jones industrial average to an intraday record.
“The concern is that the Fed was seeing something at their last meeting that suggested potentially more pronounced weakness than we had all been anticipating in the economy,” said Drew Matus, an economist at Lehman Bros.
The Dow ended the day ahead 11.37 points, or 0.1%, at 12,474.52 after being up as much as 117 points, to 12,580.
The blue-chip Dow rallied 16.3% in 2006, its best performance since 2003, in large part on hopes for a “soft landing” for the economy -- growth that is slow enough to restrain inflation but not so slow that it threatens to turn into a recession.
Broader stock indicators finished mixed Wednesday. The Standard & Poor’s 500 eased 1.67 points, or 0.1%, to 1,416.63, while the technology-dominated Nasdaq composite added 7.87 points, or 0.3%, to 2,423.16.
Bond yields slipped following the release of the Fed minutes, with the yield on the benchmark 10-year Treasury note falling to 4.66% from 4.68% on Tuesday.
The dollar advanced broadly despite the Fed report.
The biggest sell-off of the day occurred in commodities. Oil futures sank $2.73 to $58.32 a barrel in New York as mild weather continued its hold over much of the United States, curtailing demand for heating oil and natural gas.
Traders bailed out of many other commodities as well. Near-term copper futures in New York plunged 22.2 cents to $2.63 a pound, the lowest since April. Wheat futures fell 24.5 cents to $4.76 a bushel in Chicago.
Earlier in the day, investors had cheered a report showing that U.S. manufacturing activity rebounded in December after a contraction in November.
Some analysts said the stock market seemed out of sorts after the extended weekend.
Equity markets were closed Tuesday to mark the funeral of former President Ford.
All markets were closed on Monday for the New Year’s holiday.
The four-day hiatus was the longest since the aftermath of the Sept. 11, 2001, terrorist attacks.
Among the day’s market highlights:
* Many energy and other commodity-related stocks pulled back sharply. Exxon Mobil dropped $2.52 to $74.11, ConocoPhillips sank $3.76 to $68.19 and mining firm Rio Tinto dropped $8.39 to $204.10.
* Gold mining stocks fell as gold futures slid $8.10 to $627.10 an ounce. Newmont Mining lost 95 cents to $44.20.
* General Motors gave up $1.27 to $29.45 after the automaker lowered its 2007 production forecast and reported its U.S. sales fell 9.6% in December.
* Shares of home builders were weaker even ahead of the release of the Fed minutes. Lennar, the biggest U.S. builder, warned that it expected to post a loss in the fourth quarter and its chief executive said he saw no signs of a recovery in the housing market. Lennar fell $1.83, or 3.5%, to $50.63. KB Home slumped $2.02 to $49.26.
* On the plus side, Home Depot jumped 91 cents to $41.07 after Bob Nardelli resigned as chief executive of the world’s largest home improvement chain.
Wal-Mart Stores gained $1.37 to $47.55 after an upbeat December sales report.
* Cytokinetics surged 86 cents, or 11.5%, to $8.34 on news it would work with Amgen to develop drugs to combat heart failure. Thousand Oaks-based Amgen rose 9 cents to $68.40.
* Airline stocks rallied as oil fell. AMR, parent of American Airlines, soared $2.63 to $32.86. Continental jumped $2.72 to $43.97 and JetBlue gained $1 to $15.20.
* Declines in commodity prices pulled down the main Canadian stock index, which plunged 1.7%. Shares fell 2.1% in Brazil, which also is a major commodity exporter.
Thailand’s market tumbled 3% after apparent terrorist bombings in Bangkok on New Year’s Eve.
