US stocks sink as economic uncertainty grows
Economic uncertainty overshadowed a peaceful and early transfer of power in Iraq today, cutting off a rally and leaving stocks modestly lower while investors fretted about the Federal Reserve’s imminent decision on interest rates.
Investors had worried that the transfer in Iraq would be sabotaged by terrorists, and were cheered at the surprise move, which was originally scheduled for Wednesday. Oil prices also fell sharply on the news, further boosting stocks.
However, investor enthusiasm waned in anticipation of the Fed meeting tomorrow and Wednesday, and in response to a strong consumer spending report that fuelled inflation worries.
“Clearly this event stirred a great deal of confidence and optimism, but that can be a fleeting thing,” said Hugh Johnson, chief investment officer at First Albany Corp. ”Now that this is over with, you can expect investors to focus on what really counts this week, such as all the economic data coming out.”
The Dow Jones industrial average fell 14.75, or 0.1%, to 10,357.09. The Dow had been up as much as 92 points earlier in the session.
Broader stock indicators were modestly lower. The Standard & Poor’s 500 index was down 0.91, or 0.1%, at 1,133.52, and the Nasdaq composite index dropped 5.65, or 0.3%, at 2,019.82.
According to the Commerce Department, consumer spending rose by 1% in May, far more than the 0.2% increase in April. The May figure was the largest increase since October 2001. Incomes rose by 0.6% in May, the second straight month of increases.
However, with spending on the rise, pricing power shifts to companies eager to raise prices to continue their stellar quarterly earnings trends. But that can also lead to inflation.
“I think these numbers were good, but it’s been scaring the inflation bears just a little,” said Ken Tower, chief market strategist for Schwab’s CyberTrader. “But with the Fed meeting on Wednesday, I think we’ll start to see things pick up even more through the rest of the week and we can really start a nice rally here.”
In addition to the Federal Reserve decision Wednesday, investors were looking to manufacturing data, unemployment figures and the latest job creation data later in the week.
Wal-Mart Stores Inc. cut its second-quarter sales forecasts before the session, blaming bad weather and a slow Father’s Day. The company said same-store sales would rise just 2% to 4%, down from the 4% to 6% previously forecast. Wal-Mart slid 5 cents to 52.46 dollars.
Watson Pharmaceuticals plunged 4.80 dollars to 27.49 dollars after the company said it would miss earnings forecasts in the second quarter due to slow sales of its oral contraceptive products.
Canadian news publisher Thomson Corp. said it would buy Information Holdings Inc., a provider of patent and regulatory information, for 441 million dollars. Thomson was down 31 cents at 31.98 dollars, while IHI was up 1.13 dollars at 27.57 dollars.
Linux software distributor Red Hat Inc. rose 49 cents to 22.72 dollars after it said it would ship a free media player with its software package in cooperation with RealNetworks Inc., which gained 4 cents to 6.69 dollars.
Declining issues outnumbered advancers by about 5 to 4 on the New York Stock Exchange, where volume was moderate.
The Russell 2000 index of smaller companies was down 3.60, or 0.6%, at 584.10.
