US stocks mixed after Fed expresses inflation worries
Stocks in the United States stumbled to a mixed finish today as the Federal Reserve kept to its policy of gradual interest rate rises but signalled increased concerns about inflation.
The Fed’s Open Market Committee announced a widely expected quarter per cent point increase in the nation’s benchmark lending rate, to 3%, and said future rate rises would remain “measured” – a phrase designed to ease investors’ fears of more aggressive increases.
Most of the statement that accompanied the latest rate move was largely unchanged from the Fed’s March 22 meeting, although the central bank did express more concern about inflation and acknowledged that higher energy prices are starting to slow spending growth.
Neither was enough for the Fed to abandon its approach to rate rises, but investors had hoped for more news on economic growth in the face of an apparent slowdown in growth.
“The Fed is becoming somewhat more conservative and hawkish with respect to inflation issues,” said Jack Caffrey, equity strategist for J P Morgan Private Bank.
”People were thinking that Fed would address the economy, maybe be a little more flexible on rates to allow the economy to get over the slowdown, but they obviously aren’t as concerned about that.”
According to preliminary calculations, the Dow Jones industrial average rose 5.25, or 0.05%, to 10,256.95.
Broader stock indicators also moved higher. The Standard & Poor’s 500 index was down 0.99, or 0.1%, at 1,161.17. The Nasdaq composite index gained 4.42, or 0.23 percent, at 1,933.07.
Falling crude prices gave a little support to stocks, with a barrel of light crude settling at 49.50dollars, down 1.42dollars, on the New York Mercantile Exchange. The bond market slipped lower, with the yield on the 10-year Treasury rising to 4.20% from 4.19% late Monday. The dollar was mixed against other currencies in European trading, and gold prices fell.
Wall Street again received mixed messages on the economy, with American factories showing a tiny 0.1% increase in orders last month, better than the large drop economists had forecast.
However, the vast majority of orders were for consumable goods, while orders for big-ticket, durable items fell sharply - a sign that consumers aren’t making the big purchases that fuel economic growth.
While stocks have recovered modestly from a terrible April, Wall Street had been hoping that a strong, positive statement fro the Fed would help stocks push upward even further. Uncertainty over the economy has kept stocks from moving substantially off their 2005 lows.
“Right now, the market has stabilised, but until we get some more data on how much the economy is going to slow, how much earnings are going to slow, I don’t think you can make any stronger statement than that,” said Hugh Johnson, chief investment officer at Johnson Illington Advisors in Albany, New York “It’s clear the economy is slowing, but investors want to know how much and how far.”
The Fed has steadily issued quarter percentage point rate hikes since June, when the benchmark rate stood at just 1 percent.
In company news, Tyco International Ltd. Dropped 2.07dollars to 28.65dollars in heavy trading after the high-tech manufacturer said second-quarter profits dropped 75% on a number of one-time charges. While Tyco beat Wall Street’s profit expectations by a penny per share, investors were disappointed with a lower-than-expected forecast for future quarters.
Shares of Boeing Co. and Lockheed Martin Corp. rose after they announced a joint venture to produce rockets for the US military, ending a bitter rivalry and setting the stage for the defence contractors to drop pending litigation involving the rocket business. Boeing was up 49 cents at 59.87dollars; Lockheed added 55 cents to 62.41dollars.
Oshkosh Truck Corp., one of the US military’s top vehicle suppliers in Iraq, tumbled 4.73dollars to 72.02dollars despite reporting earnings that exceeded its best estimates for the second quarter and a profit outlook that surpassed analysts’ expectations.
Declining issues outnumbered advancers by about 8 to 7 on the New York Stock Exchange, where volume came to 1.67 billion shares, compared with 1.57 billion at the same point Monday.
The Russell 2000 index of smaller companies was down 1.38, or 0.24%, at 584.48.
