Ya know, its easy going up and its easy going down but the middle is hard.
Inflation Talk Snuffs Out Rally
By ANNELENA LOBB
February 6, 2008 5:36 p.m.
A warning from a Federal Reserve policy maker about inflation and continued concern about economic growth drowned out a stock rally a day after recession anxiety sent blue chips to their worst losses of the year.
The Dow Jones Industrial Average fell 65.03 to 12200.10, souring in part on remarks from Philadelphia Fed President Charles Plosser. Mr. Plosser said he would advocate more rate cuts if the economy suffers more than expected, but that the central bank "must not lose sight of the other part of the Fed's dual mandate -- which is price stability." He also said that the U.S. should "skirt" recession, though the odds of one have risen.
S&P strategist Sam Stovall discusses the election cycle and its effect on Wall Street. He says Wall Street generally fears Democrats even though there have been bigger increases while they hold office.
"The market is still in nervous mode," Fred Dickson, chief market strategist at D.A. Davidson, said, citing concerns about a U.S. slowdown, further problems in the credit markets, and lingering worries about bond insurers as sources of stress.
Technology stocks were particularly weak. The Nasdaq Composite Index fell 30.82 points, or 1.3%, to 2278.75. The day's fall put the tech-heavy benchmark 20% off its October 2007 peak, territory traditionally defined as a bear market. Tech heavyweights Apple and Research in Motion dropped, falling by 5.7% and 4.8%, respectively. Google dropped by 1%.
"Apple is a consumer stock," said Kim Caughey, senior investment analyst at Fort Pitt Capital Group. "It's risen up on being extremely popular among the set with lots of disposable income." Ms. Caughey said that fears of a weakening consumer gathered steam after Macy's reported much-weaker-than-expected January sales and deep job cuts. Shares of the department-store giant fell 4.6%.
The Standard & Poor's 500 Index dropped 10.19 points, or 0.8%, to 1326.45.
Many on Wall Street believe a slowing economy will help rein in prices and that the Fed can focus on reviving growth by lowering interest rates. But Mr. Plosser, speaking to the Rotary Club of Birmingham, Ala., rejected the notion that a slowdown "will by itself reduce inflation." He said core inflation, which excludes the prices of food and energy, is likely to remain in the 2% to 2.5% range this year, which "is above the range I consider to be consistent with price stability," Mr. Plosser said.
There were signs Wednesday that some price pressures may be on the wane. The Labor Department said unit-labor costs grew 2.1% in the fourth quarter, less than the 3.8% Wall Street economists had forecast, on average. Oil futures also declined following a larger-than-expected increase in crude-oil inventories, falling $1.27, or 1.4%, to settle at $87.14. High energy costs have been a major source of inflation pressure for both consumers and businesses.
"The ISM data may have been the capitulation for people who still thought we could escape recession," said Peter Cardillo, chief market strategist at Avalon Partners. "It raises the odds of at least one quarter of negative growth."
Peter Boockvar of Miller Tabak thinks stocks have further to fall. "Yesterday was the worst day we've had in a year," he said. Stock markets are now priced "maybe for a mild [recession], but not for the bigger one I think is developing."
Despite the Dow's dip, Walt Disney remained a standout performer, after the media and entertainment bellwether recorded a sharp profit fall that nonetheless beat analysts' expectations. Cheered by a strong performance by the company's theme parks, at a time when many investors are worried about the effects of the housing downturn on spending, investors sent Disney shares advanced 4.8%.
CME Group and Nymex Holdings each plunged 18% as investors worried that a Justice Department letter that said futures exchanges should not be allowed to own or control clearing businesses that process trades could scuttle a proposed merger of the two companies.
In major market action:
Stocks fell. Wednesday, 1,168 stocks were up and 1,952 were down at the New York Stock Exchange, on volume of 1.5 billion shares traded.
Bonds fell. The two-year note fell 1/32, raising its yield to 1.964%. The 10-year note was down 8/32, yielding 3.615%. Yields move inversely to prices.
The dollar was split. The euro traded at $1.4624, compared with $1.4635 late Tuesday, while the dollar traded at 106.48 yen, from 106.86 yen late Tuesday.
Write to Annelena Lobb at annelena.lobb@wsj.com |
