US stocks tumble on rates news
Disappointed investors sent stocks tumbling today after the Federal Reserve said it would keep to its policy of raising interest rates at a ”measured” pace.
As expected, the Fed also raised short-term rates for the ninth time in a year.
Investors had hoped the Fed’s Open Market Committee would set a timeframe for ending its string of rate hikes.
But the committee said it “will respond to changes in economic prospects as needed to fulfil its obligation to maintain price stability” – an indication that its focus remains limiting inflation, and that rate increases are likely.
The Fed boosted the federal funds rate, a key rate used by banks on overnight loans, by 0.25% to 3.25%.
“We get more of the same,” said Jeff Kleintop, chief investment strategist for PNC Advisors.
The committee statement “doesn’t give any insight into how close the Fed is to being finished with this tightening regime,” he said.
The Dow Jones industrial average was hit harder than other indexes. The Dow fell 99.51, or 1%, to 10,274.97.
Broader stock indicators also dropped. The Standard & Poor’s 500 index was down 8.52, or 0.71%, at 1,191.33 and the Nasdaq composite index lost 11.93, or 0.58%, to 2,056.96.
Oil prices, also a major concern on Wall Street, continued their decline from Monday's record highs of more than 60 per barrel.
Crude ended trading at 56.50, down 76 cents, on the New York Mercantile Exchange.
Bonds were higher, with the yield on the 10-year Treasury note falling to 3.94% in late trading from 4% late Wednesday. The dollar was mixed against other major currencies, while gold prices were unchanged.
Stocks finished a turbulent second quarter with mixed results, as crude oil futures fluctuated widely and as concerns about inflation and a possible economic slowdown roiled the markets. For the second quarter, the Dow lost 2.18%, while the S&P gained 0.91% and the Nasdaq climbed 2.89% as technology stocks came back into vogue.
For the year, however, stocks remain lower. So far this year, the Dow is down 4.71%, the S&P is off 1.7% and the Nasdaq has dropped 5.45%.
The Fed’s statement said that even with higher oil prices, the economy has continued to grow at a respectable pace.
“The expansion remains firm and labour market conditions continue to improve gradually,” the Fed said.
With the Fed decision now behind it, Wall Street will look toward to tomorrow’s release of June employment numbers, and Fed Chairman Alan Greenspan’s upcoming testimony before Congress. “That will give more colour,” Kleintop said.
The Commerce Department reported a slim 0.2% increase in personal incomes for May, far less than April’s 0.6% increase. And consumer spending was unchanged in May after having risen by 0.6% in April. With consumer activity accounting for two-thirds of the economy, investors worried that the figures, if the start of a trend, could hurt corporate earnings.
But there were some signs of strength in the labour market as the Labour Department reported that the number of people filing new claims for unemployment benefits fell last week for a second straight week. The decline of 6,000, to a total number of new claims of 310,000, the lowest level since mid-April.
Among individual stocks, MBNA surged 24.3%, or 5.09, to 26.16 on news of Bank of America’s acquisition of the credit card company.
The deal would put Bank of America in the top ranks of global credit card issuers. Both company boards have agreed to the acquisition, which will result in 6,000 job cuts, but it must receive approval from government regulators and MBNA shareholders.
Bank of America, which said it will likely take a US$1.25bn (1.03bn) restructuring charge, lost 1.30 dollars to 45.61.
Aerospace manufacturer Boeing Co. has tapped W James McNerney, the chief executive of 3M Co, as its new chairman and CEO McNerney becomes the third CEO of Boeing in the last 18 months. 3M said Robert Morrison, a board member and former chief of Quaker Oats, will serve as interim CEO there. Boeing jumped 4.33 to 66.00, while 3M dropped 3.74 to 72.30.
Declining issues outnumbered advancers by about 8 to 7 on the New York Stock Exchange, where volume came to 1.35bn shares, compared to 1.36bn Wednesday.
The Russell 2000 index of smaller companies fell 3.10, or 0.48%, to 639.66.
