Stocks falter on recession talk, oil prices
Stocks fell for the first time in three days Wednesday after Federal Reserve Chairman Ben S. Bernanke conceded that the U.S. economy could face recession and rising fuel prices snuffed out a rally in retailing stocks.
Early in the day, Bernanke told a congressional panel that the economy might contract in the first half of 2008. But he predicted a rebound in the second half of the year.
Oil prices shot up on an Energy Department report of an unexpected jump in gasoline demand. Crude futures rose $3.85 to $104.83 a barrel.
“The oil uptick took away some of the optimism that we’ve seen recently,” said Richard Cripps, chief market strategist for Stifel Nicolaus.
A day after surging nearly 400 points, the Dow Jones industrials crossed the break-even line several times before falling 48.53 points, or 0.4%, to 12,605.83.
The Standard & Poor’s 500 index dropped 2.65 points, or 0.2%, to 1,367.53, while the Nasdaq composite index lost 1.35 points, or 0.1%, to 2,361.40.
The Russell 2,000 index of smaller companies rose 1.62 points, or 0.2%, to 712.27.
Advancing issues barely outpaced decliners on the New York Stock Exchange.
Treasury yields rose as investors weighed Bernanke’s testimony before Congress, focusing on hints that the central bank might be near the end of its rate-cutting campaign. The benchmark 10-year Treasury note’s yield climbed to 3.6% from 3.56% late Tuesday.
The dollar was mixed against other major currencies, while gold rose.
Equity investors paid close attention to what Bernanke had to say about a number of problems facing the economy -- including tightening credit markets, a housing downturn and the near collapse of investment bank Bear Stearns.
Stocks initially rose after the Fed chairman said he didn’t believe any big U.S. investment banks faced the possibility of a collapse.
Bernanke’s warning about a potential recession probably didn’t shock investors who trudged through one of the more difficult first quarters in years. Indeed, many economists have said they believe a recession is underway, but Fed officials generally tend to be more cautious when describing the economy.
Kim Caughey, equity research analyst at Fort Pitt Capital Group, said Bernanke didn’t have “anything new to say” Wednesday and was just reiterating earlier statements.
“This is evidence that he is being more transparent -- there are no big bombs dropping during congressional testimony,” she said.
Bernanke also outlined some of the steps taken in the last few weeks to help boost the financial positions of the nation’s biggest investment banks.
He said a failure of Bear Stearns would have been difficult to contain, and that was a reason the central bank helped arrange the firm’s sale to JPMorgan Chase.
JPMorgan fell 38 cents to $46.24, while Bear Stearns rose 1 cent to $10.86.
Retailers helped lead the market higher in the morning after Best Buy posted earnings that topped analyst estimates. But the sector pulled back after oil began its ascent.
Best Buy rose 47 cents to $43.94, after being up as much as $2.19. Home Depot fell 33 cents to $29.16. Sears Holdings, the retail chain being reorganized by hedge fund investor Edward Lampert, dropped $1.86 to $107.61.
The rallies in oil and gold boosted producers of raw materials. Exxon Mobil gained $1.50 to $88.52. Newmont Mining added $1.48 to $46.28. Freeport-McMoRan Copper & Gold advanced $2.10 to $99.73.
Richard Sparks, senior equity analyst at Schaeffer’s Investment Research, called Wednesday’s market performance a breather. Stocks might begin to percolate higher, he said, if first-quarter profits come in better than expected and credit markets stay stable.
On Tuesday, “the market did a lot of work,” Sparks said. “It makes sense that it needs a bit of a rest here before resuming on, if it can.”
In other market highlights:
* National City slid 77 cents to $9.22 after the Wall Street Journal reported that the Ohio-based bank might sell itself to KeyCorp.
* Crocs tumbled $1.78 to $15.55. A JPMorgan analyst downgraded shares of the maker of colorful plastic shoes, citing weaker-than-expected U.S. sales and high inventory.
* Stocks surged overseas Wednesday in the wake of Wall Street’s big rally Tuesday. Key stock indexes climbed 4.2% in Japan, 1.1% in Britain, 2.8% in Germany and 0.9% in France.
