Oil, confidence index clip stocks
Stocks ended moderately lower Tuesday as concerns grew about the effect of high fuel costs on consumers and corporate profits.
The New York-based Conference Board, a private business group, said its consumer confidence index came in at 50.4 this month, down sharply from 58.1 in May and well below the 56.5 reading expected on average by economists. The index came out after a dismal report early Tuesday on U.S. home prices and a profit warning late Monday from UPS that cited high oil prices.
UPS fell $4, or 6%, to $62.26 after trimming its profit forecast for the current quarter.
Adding to investors’ anxiety, oil prices rose 26 cents Tuesday to settle at $137 a barrel on the New York Mercantile Exchange.
Wall Street’s overriding concern is that expensive energy will keep the economy from growing and aggravate inflation at the same time -- a scenario that gives the Federal Reserve little wiggle room to combat inflation with higher interest rates or stimulate growth with lower rates. The central bank, whose rate-setting meeting began Tuesday and concludes today, is expected to hold the key rate at 2%.
“The market has priced in no action from the Fed,” said Jim Herrick, manager of equity trading at Baird & Co. “With the housing market the way it is, and the financial system feeling fragile . . . I’d really be surprised if the Fed in this environment would consider raising rates in the near future.”
Shares of financial service companies were among Tuesday’s top performers. With stocks including Merrill Lynch and Bank of America trading at multiyear lows, some investors apparently perceived a good opportunity to buy -- or to unwind bets that the stocks would drop further.
The Dow Jones industrial average fell 34.93 points, or 0.3%, to close at 11,807.43 after moving in and out of positive territory. Early in the session, the gauge dropped more than 100 points, falling below the low it set March 10, when Bear Stearns Cos. appeared to be on the verge of collapse.
Broader stock indicators also fell. The Standard & Poor’s 500 index declined 3.71 points, or 0.3%, to 1,314.29, and the Nasdaq composite index dropped 17.46 points, or 0.7%, to 2,368.28.
The Russell 2,000 index of smaller companies fell 11.89 points, or 1.7%, to 707.92.
Declining issues outnumbered advancers by about 2 to 1 on the New York Stock Exchange.
Government bond yields fell along with stocks on the weak consumer confidence numbers and on a successful auction by the Treasury of new two-year notes. The yield on the benchmark 10-year T-note slid to 4.08% from 4.17% late Monday.
The dollar fell against other major currencies, while gold prices rose.
Even if the Fed holds steady on interest rates, the market will be interested in reading what the central bankers say about the economy.
The S&P;/Case-Shiller index showed Tuesday that U.S. home prices fell in April at the fastest pace since 2000. For the first time, all 20 metropolitan areas measured by the index posted year-to-year declines.
“It’s another milepost in the overall collapse of the real estate economy,” said Dan Alpert, managing director at investment bank Westwood Capital. Until the housing market bottoms, he said, there will be continued erosion in the financial sector.
But Tuesday, financial stocks in the S&P; 500 jumped 1.5% as a group, rebounding from a five-year low set Monday, while home builders surged 6.2%.
Bank of America climbed 74 cents, or 2.9%, to $26.62. JPMorgan Chase rose 85 cents, or 2.3%, to $37.72. Merrill Lynch advanced 52 cents, or 1.5%, to $35.06.
UBS jumped $1.43, or 6.9%, to $22.03 on rumors that the Swiss bank could be a takeover target.
Home builders rallied after a Credit Suisse report said the industry could begin a recovery next year, overshadowing the release of home price data. Builders that have solid balance sheets, such as Ryland Group, Toll Bros. and KB Home, will be able to buy land at distressed prices, Credit Suisse analyst Daniel Oppenheim wrote.
D.R. Horton surged 86 cents, or 7.3%, to $12.62. Toll Bros. gained 68 cents, or 3.6%, to $19.73. Los Angeles-based KB Home shot up $1.28, or 7.3%, to $18.77. Ryland Group rose $1.42, or 6.2%, to $24.27.
In other market highlights:
Kroger rose $1.82, or 7%, to $27.82 after the grocery chain said its fiscal first-quarter profit climbed 15%.
Kodak surged $1.69, or 13.7%, to $14.03 after saying it would buy back as much as $1 billion, or about a quarter, of its shares outstanding.
Dow Chemical dropped $1.04, or 2.8%, to $36.58 after the chemical company raised prices by 25% because of rising costs for energy and raw materials.
General Motors rose 28 cents, or 2.1%, to $13.19. The automaker said it would raise prices on 2009 models by an average of 3.5% to help cover the rising cost of steel and other commodities.
Overseas, key stock indexes fell 0.6% in Britain and 0.8% in Germany and France. Shares edged down in Japan.
