Stocks decline modestly in erratic session
The stock market finished an extremely erratic session Tuesday with a modest decline as investors parsed unimpressive data on home sales and consumer confidence and awaited the Federal Reserve’s meeting on interest rates.
The Dow Jones industrial average initially slipped, then soared nearly 100 points before ultimately pulling back again -- much as it did Monday, when the blue-chip index rose by triple digits only to give up the gains and finish lower.
In a sign that the housing slump is far from over, the Commerce Department reported that sales of new homes fell 1.6% in May to a seasonally adjusted annual rate of 915,000 units. It was the fourth decline in the last five months.
Investors were also jittery about a larger-than-expected drop in the Conference Board’s consumer confidence index, continuing sub-prime lending troubles and what the Fed might say about interest rates Thursday. Wall Street expects the central bank to keep its benchmark rate steady at 5.25%, but it will be watching for any change in policymakers’ stance on inflation that could point to a rate cut or rate hike this year.
“There’s a lot to keep people busy,” said Scott Fullman, director of investment strategy for I. A. Englander & Co. “All of these issues are really coming into play, as we’re seeing with the volatility in the market. It’s going to go on for a little while longer until the market has a reason to settle down.”
Stocks drew support from a drop in oil prices and some fresh takeover activity, but they weren’t enough to maintain a rally.
The Dow fell 14.39 points, or 0.1%, to 13,337.66. The Standard & Poor’s 500 index slipped 4.85 points, or 0.3%, to 1,492.89, and the Nasdaq composite index fell 2.92 points, or 0.1%, to 2,574.16.
The Russell 2,000 index of smaller-company stocks fell 1.33, or 0.2%, to 826.13.
Declining issues outnumbered advancers by about 5 to 3 on the New York Stock Exchange.
Since the Dow and the S&P; reached record closes June 4, they have been stumbling in the wake of a surge in Treasury yields that raised concerns about the Fed’s interest rate policy.
Bond yields ended little changed. The yield on the benchmark 10-year Treasury note finished at 5.08%, unchanged from late Monday.
The dollar gained against the yen and was unchanged against the dollar. Gold prices fell.
Overall, the housing market looked dim Tuesday. The Standard & Poor’s home price index fell in April, marking its 17th consecutive drop and its steepest year-over-year decline since 1991. And home builder Lennar posted a loss for the second quarter and warned that a third-quarter loss was likely.
Lennar fell $1.20, or 3.1%, to $37.55, and other home builders followed suit.
Takeover news helped boost stocks early in the day.
Basell, a division of billionaire investor Leonard Blavatnik’s Access Industries, said it would buy rival chemical company Huntsman for $5.6 billion in cash. Huntsman soared $5.31, or 28%, to $24.21.
Investment management company BlackRock said it was buying the fund of funds division of Quellos Group in a deal worth as much as $1.7 billion. BlackRock advanced $1.77, or 1.1%, to $156.30.
Roche Holding made a $3-billion hostile bid for medical testing products maker Ventana Medical Systems, which surged $24.69, or 48%, to $76.43.
Late Monday, Spanish power company Iberdrola said it planned to buy utility owner Energy East for $4.5 billion in cash. Energy East surged $3.71, or 16%, to $26.25.
But the buyout news could not calm Wall Street’s skittishness.
“The glass is half empty right now. We’ve got to wait for the sentiment to change,” said John Forelli, portfolio manager for Independence Investment in Boston. “People aren’t worried about growth, people aren’t worried about earnings -- they’re worried about inflation.”
Meanwhile, sub-prime lending woes remain a major market concern. Securities and Exchange Commission Chairman Christopher Cox said Tuesday that the SEC had opened about a dozen investigations related to securities backed by sub-prime mortgages.
Sub-prime worries should be a boon for the Treasury bond market, but so far they haven’t been. Treasury prices have remained weak, keeping their yields high and leading many investors to avoid stocks because high long-term interest rates can slow down business. Bond yields and prices move in opposite directions.
“They’re worried about the safest asset class out there, U.S. government bonds, and the riskiest asset class out there, sub-prime loans,” Forelli said. “It shows the indecision out there among investors right now.”
Oil prices slid. Crude futures dropped $1.41 to $67.77 a barrel on the New York Mercantile Exchange.
Overseas, key stock indexes fell 0.1% in Japan, 0.4% in Britain, 0.9% in Germany and 0.8% in France.
