Most U.S. Stocks Fall After Fed Officials Say Rates May Climb
By Eric Martin
June 9 (Bloomberg) -- Most U.S. stocks fell, led by banks and technology companies, after speculation the Federal Reserve will raise interest rates overshadowed improving sales at McDonald's Corp. and a rally in energy producers.
Washington Mutual Inc., National City Corp. and Lehman Brothers Holdings Inc. led financial stocks in the Standard & Poor's 500 Index to the lowest level since April 2003 after New York Fed Bank President Timothy Geithner said there have been ``very large sustained'' price increases around the world. McDonald's biggest jump in four months and a 2.6 percent advance in Exxon Mobil Corp. spurred gains in the S&P 500 and Dow Jones Industrial Average.
``This whole financial mess still has to work itself out, so a comment from the Fed that they want to fight inflation, that's not what the market wants to hear,'' said Bucky Hellwig, who helps oversee about $30 billion as senior vice president at Morgan Asset Management in Birmingham, Alabama. ``The market as a whole is not going to do anything significant as long as the financial sector continues to deteriorate.''
About eight stocks decreased for every five that gained. The Nasdaq Composite Index lost 15.1 points, or 0.6 percent, to 2,459.46. The S&P 500 added 1.08, or 0.1 percent, to 1,361.76. The Dow average climbed 70.51, or 0.6 percent, to 12,280.32.
Futures trading showed a 49 percent chance of an increase in the Fed funds target rate by mid-September, up from 26 percent in the previous session, and yields on two-year Treasuries rose the most since March 1996. The S&P 500 has dropped 7.8 percent since September when the Fed made the first of seven interest rates cuts that have lowered the overnight lending rate between banks by 3.25 percentage points.
`Done Lowering Rates'
``The Fed is done lowering rates, and they've spent the time since the last meeting communicating that to the market,'' said Joseph Keating, the Birmingham, Alabama-based chief investment officer of RBC Bank Private Asset Management, which oversees about $3 billion. ``That begs the question `When are they going to raise?'''
The Dow industrials dropped 395 points, or 3.1 percent, on June 6 following a jump in the unemployment rate and a $10-a- barrel rise in crude oil. The S&P 500 also retreated, trimming its rally from a 19-month low in March to 6.9 percent.
Washington Mutual, the biggest U.S. savings and loan, lost $1.28, or 17 percent, to $6.25. The company's mortgage-related losses will be about $21.7 billion through 2011, compared with the $12 billion to $19 billion the company forecasts, UBS AG analyst Eric Wasserstrom wrote in a report. He cut his 12-month share price target to $8.50 from $11.
Lehman's Drop
National City dropped 48 cents, or 9.7 percent, to $4.47.
Lehman, the fourth-largest U.S. securities firm, reported a record $2.8 billion second-quarter loss and said it will raise $6 billion in capital in a public offering. Stocks in Europe and Asia dropped as investors speculated bank losses will increase.
Lehman dropped $2.81 to $29.48. A gauge of financial stocks in the S&P 500 lost 2.3 percent after earlier rising 0.8 percent.
Citigroup Inc., Merrill Lynch & Co. and UBS AG may post losses of $10 billion on bond insurance after MBIA Inc. and Ambac Financial Group Inc. lost their top credit ratings, Oppenheimer & Co. analyst Meredith Whitney said.
MBIA and Ambac, the world's largest bond insurers, had their AAA ratings cut two levels by Standard & Poor's June 5, which trimmed ratings on more than $1 trillion of securities they guaranteed. The downgrades may limit the so-called monoline insurers' ability to write new policies, putting further pressure on earnings, Whitney wrote in a note to investors.
Merrill, UBS
Merrill lost $1.26, or 3.2 percent, to $37.76 and UBS retreated 81 cents to $23.10. MBIA and Ambac each fell more than 10 percent. Citigroup dropped 46 cents to $19.60.
Laszlo Birinyi, whose October warning that bank shares may fall preceded a 30 percent plunge in the Standard & Poor's 500 Financials Index, said he still won't buy the stocks until prices rebound from a five-year low.
``There seems to be no end to the bad news,'' Birinyi, who oversees more than $350 million as president of Birinyi Associates Inc. in Westport, Connecticut, said in an interview on Bloomberg Television. ``Every time we think we've found out all the bad news, we get yet another surprise.''
Financial stocks also retreated after the Fed's Geithner told a New York audience that ``tighter monetary policy'' may be needed globally and Richard Fisher, president of the Fed Bank of Dallas, said he agreed.
``It's something that I think a lot of monetary authorities will have to come to grips with,'' Fisher said of inflation during an interview with CNBC today. ``The question is how and when.''
Apple Drops
Apple lost $4.03 to $181.61 after saying carriers won't have give the company a cut of the lucrative monthly service fees from the new third-generation phones. Apple unveiled the faster, cheaper handsets today and said they will go on sale 22 countries starting July 11.
Stocks rose earlier as oil's retreat from a record and rising sales at McDonald's Corp. boosted confidence consumers will keep spending.
McDonald's, the world's largest restaurant company, gained the most in four months, adding $2.36, or 4.1 percent, to $59.31. The maker of the Big Mac hamburger boosted same-store sales in Europe by 9.6 percent and 9.7 percent in Asia, the Middle East and Africa. Same-store sales in the U.S. rose 4.3 percent as McDonald's breakfast menu helped attract customers.
Energy Stocks
Energy stocks climbed 2.7 percent, the most among 10 industries in the S&P 500, after Goldman Sachs Group Inc. recommended investors buy companies including ConocoPhillips, Hess Corp., Chevron Corp. and Suncor Energy Inc. The world's biggest energy companies are cheap relative to the price of oil, Goldman wrote in a report to investors.
ConocoPhillips added 3.3 percent to $95.24, Hess rose 2.9 percent to $127.47, Chevron climbed 1.7 percent to $101.20 and Suncor increased 58 cents to $68.44.
Wal-Mart Stores Inc., the biggest retailer, rose after gasoline futures slipped and Saudi Arabia's Oil Minister Ali al- Naimi said an 8.8 percent surge in crude prices last week was ``unjustified.'' Wal-Mart rose $1.20 to $59.57. From the beginning of 1999 until the middle of 2000, the average price for a gallon of gas surged 79 percent, while Wal-Mart rose 34 percent, according to data compiled by Bloomberg.
Gasoline for July delivery fell 15.4 cents, or 4.3 percent, to $3.394 a gallon.
Crude Decreases
Crude oil for July delivery fell $4.19, or 3 percent, to $134.35 a barrel. The recent gain in prices is being driven by non-fundamental factors, the state-owned Saudi Press Agency reported after a meeting between al-Naimi and his Pakistani counterpart yesterday.
Alcoa Inc. gained the most in the Dow average, rising $2.95, or 7.5 percent, to $42.17. Barron's said shares in the world's third-largest aluminum producer may climb to $60 if the company becomes a takeover target, citing a Citigroup Inc. analyst.
The Russell 2000 Index, a benchmark for companies with a median market value 22 times smaller than the S&P 500, fell 0.7 percent to 735.26. The Dow Jones Wilshire 5000 Index, the broadest measure of U.S. shares, dropped 0.1 percent to 13,916.99. Based on its retreat, the value of stocks decreased by $9.6 billion. |
