NEW YORK, May 17 (Reuters) - U.S. stocks were seen opening lower on Wednesday, as Wall Street awoke more soberly to the prospect that interest rates may keep going up despite the Federal Reserve's half-percentage point boost Tuesday.
Although the market rallied after the central bank jacked up borrowing costs aggressively, as had been expected, the Fed warned of further increases to come by saying the key risk to the economy still came from higher inflation.
``Just like me, the market is trying to digest everything,'' said Peter Coolidge, senior equity trader at Brean Murray & Co. ``I think that what happened yesterday was already built into the market. Now this market has to get back to dealing with the uncertainty about when will the Fed raise rates again.''
The Standard & Poor's 500 index futures for June gave up 9.30 points to 1,462.40 while the Nasdaq 100 index futures surrendered 50.05 points to 3,619.95.
``I think the market went too far, too fast in anticipation of this rate increase,'' said James Volk, co-director of institutional trading at D.A. Davidson & Co.
``We have had six interest rate increases now (since last June) and we are looking at a couple more,'' Volk added. ``If you slow down the economy, you slow down earnings. I think people are going to start questioning multiples on stocks.''
On Tuesday, technology stocks rallied after the central bank's decision, boosting the Dow Jones industrial average and the Nasdaq composite for the fourth consecutive session.
The blue-chip Dow (^DJI - news) gained 126.79 points, or 1.17 percent, to 10,934.57, rebounding in a late rally after briefly trimming its gains on the rate increase announcement. Since last Wednesday, the gauge has risen 567 points.
Strength in tech leaders drove the Nasdaq composite (^IXIC - news) up 109.92 points, or 3.05 percent, to 3,717.57. Tuesday's push brought Nasdaq's gain to 333 points in four sessions.
Broader measures of the market also climbed. The Standard & Poor's 500 index (^SPX - news) jumped 13.68 points, or 0.94 percent, to 1,466.04. The Wilshire 5000 index (^TMW - news) rose 163.73 points, or 1.22 percent, to 13,601.38 and the small-cap Russell 2000 (^RUT - news) ended up 8.17 points, or 1.64 percent, at 505.98.
Before the Fed moved forward with its sixth strike against inflation since last June, there was further evidence that its five previous rate increases -- each of a more gentle 25-basis points -- had been starting to inflict some damage on inflation.
On Tuesday, a report showed that the U.S. Consumer Price Index, a key gauge of inflation at the consumer level, was unchanged in April, while economists polled by Reuters had expected a 0.1 percent increase. The core CPI, with volatile food and energy prices stripped out, rose by 0.2 percent as expected.
But rising labour costs and record low U.S. unemployment continue to trouble the inflation-wary Fed. The Fed's rate-setting committee next meets on June 27 and 28.
In early trading, bond prices eased, with the 10-year U.S. Treasury note down 7/32, pushing up the yield to 6.46 percent from Tuesday's close of 6.42 percent. The 30-year bond dropped 15/32, with the yield up to 6.15 percent from Tuesday's close of 6.11 percent.
Among the stocks to watch on Wednesday, TD Waterhouse Group Inc. (NYSE:TWE - news), the world's No. 2 discount broker, reported second-quarter earnings per share of 20 cents, surpassing Wall Street estimates. Its stock closed at 18-11/16 on Tuesday.
Mattel Inc. (NYSE:MAT - news), the toymaker behind Barbie, named Robert Eckert, the 45-year-old head of Philip Morris Co.'s (NYSE:MO - news) Kraft Foods unit, as chairman and chief executive. Mattel closed at 11-5/16.
Analogue Devices Inc. (NYSE:ADI - news), a maker of computer chips that transform sound and video into digital data, posted second-quarter earnings of 32 cents a share. Analogue Devices closed at 67-3/4.
Billionaire investor Craig McCaw has decided to merge his planned Teledesic LLC with ICO Global Communications Ltd.'s satellite-phone project, and Hughes Electronics Corp. (NYSE:GMH - news) is likely to be the big winner in the initial phase, the Wall Street Journal reported, citing people familiar with the matter. Hughes closed at 89-3/4. |
