Stocks extend their slide
Stock prices fell for a third straight day Wednesday after a Federal Reserve official suggested that rising inflation could prevent the central bank from making further interest-rate cuts.
Although the economic slowdown is a big concern, “we must not lose sight of the other part of the Fed’s dual mandate -- which is price stability,” Charles Plosser, president of the Federal Reserve Bank of Philadelphia, said in remarks in Birmingham, Ala., according to Dow Jones Newswires.
The economy has been weakening but costs have continued to rise at a strong pace, leading some economists to believe that the country is heading for a condition known as stagflation.
Plosser’s comments weren’t entirely surprising. He is known for being more apt to argue against a rate cut than other Fed members. Nonetheless, the speech -- along with a dismal sales report from Macy’s -- cut short a rebound from Tuesday’s stock-market plunge that gave the Dow Jones industrials their biggest percentage drop in nearly a year.
The reminder about inflation also sapped some of Wall Street’s relief over better-than-expected fourth-quarter productivity and labor cost data and quarterly results from Walt Disney.
“It just shows you the market’s really skittish and temperamental,” said Jim Herrick, director of equity trading at Baird & Co. “I really believe the market is driven by emotion, that there’s this want to test the lows again.”
The Dow fell 65.03 points, or 0.5%, to 12,200.10, after being up more than 100 points.
Broader stock indicators also gave up gains. The Standard & Poor’s 500 index closed down 10.19 points, or 0.8%, to 1,326.45, and the Nasdaq composite index fell 30.82 points, or 1.3%, to 2,278.75.
The Russell 2,000 index of smaller companies fell 9.09 points, or 1.3%, to 692.49.
Declining issues outnumbered advancers by about 5 to 3 on the New York Stock Exchange.
On Tuesday, the stock market tumbled, with the major indexes losing about 3%, after a monthly survey by the Institute for Supply Management suggested a surprising contraction last month in the U.S. service sector -- news that bolstered the argument that the nation is in a recession.
The market also was down Monday, but because it rallied so strongly last week, the Dow and the S&P; 500 remain above the lows they sank to in late January.
Yields on government bonds rose Wednesday on the stronger-than-anticipated economic data. The yield on the 10-year Treasury note rose to 3.6% from 3.56% late Tuesday.
The dollar was mixed against other major currencies, while gold prices rose.
Oil futures dropped $1.27 to $87.14 a barrel on the New York Mercantile Exchange.
Shares of Macy’s fell $1.16, or 4.6%, to $23.94. The department store operator said sales at stores open at least a year fell 7.1% in January, more than expected, from a year earlier.
“The Macy’s news shows how quick on the trigger investors are,” said James Gaul, a portfolio manager at Boston Advisors in Boston. “Companies that are even a little bit squishy in their estimates are getting punished for that. It’s going to be that way till the economy shows it’s not as bad as we thought it was.”
An index of retail stocks slumped 1.9% on the report. The gauge is down 8.3% this week, marking its biggest three-day tumble since August 2002.
J.C. Penney lost $1.72, or 3.8%, to $43.72. Target fell $1.75, or 3.3%, to $51. Circuit City lost 17 cents, or 3.5%, to close at $4.72.
Disney shares rose $1.43, or 4.8%, to $31.50 after the company, a Dow component, posted better-than-expected profit late Tuesday.
In other market highlights:
* Cheesecake Factory slid $1.80, or 8.6%, to $19.07. The Calabasas-based restaurant chain said its earnings per share might grow no more than 15% this year, compared with the company’s previous forecast of 22%.
* Time Warner rose 31 cents, or 2%, to $15.71 after the company said its profit excluding certain items rose thanks to better results at its cable TV and movie operations.
* JDS Uniphase shot up $2.64, or 26%, to $12.80 after the maker of communications equipment reported earnings that surpassed Wall Street estimates.
* Cisco Systems slumped 8% to $21.24 in after-hours trading after the maker of computer-networking gear forecast sales growth of 10% in its third quarter, trailing the 15% growth projected on average by analysts. The company cited cautious customers in the U.S. and Europe.
* Also after hours, MBIA advanced 7.8% to $15.39 after the world’s biggest bond insurer said it would sell $750 million in common stock and that investment bank Warburg Pincus would “backstop” the offering by buying as much as $750 million of convertible MBIA stock.
* Select Comfort sank 7.7% to $6.60 after hours. The mattress maker’s profit fell short of estimates.
* Micron fell 85 cents, or 11%, to $6.99 in regular trading. Memory chips sold for less than they cost to produce last year, leading personal-computer manufacturers to stock up, a Bear Stearns analyst said.
* Overseas, Asian stocks tumbled Wednesday in trading that followed Tuesday’s sharp drop in the U.S. Key indexes slid 4.7% in Japan and 5.4% in Hong Kong. In Europe, shares rose 0.1% in Britain, 1.2% in Germany and 0.8% in France.
