Dollar worries keep Wall Street on edge
US stocks finished mixed in a volatile session today as investors worried that the continued fall of the dollar would spur inflation and damage the economy.
The concerns overshadowed a decent start to the holiday shopping season.
With the Federal Reserve meeting on December 14, many investors felt that the weakening dollar – which failed to gain much ground against other currencies today – would lead to substantially higher interest rates as the threat of inflation grows.
Wall Street also bid retail stocks lower despite improved sales for most retailers over the Thanksgiving weekend.
A warning from Wal-Mart Stores, which said its sales were lower than expected, led to selling across the sector. A strong showing in sales of electronics kept tech stocks slightly higher for the session.
“What we’re seeing here is investors realising that the falling dollar could prompt inflation, and that could prompt a much stronger Federal Reserve response,” said Peter Cardillo, chief strategist, senior vice president and market analyst with SW Bach & Co.
The Dow Jones industrial average fell 46.33, or 0.44%, to 10,475.90. The Dow had been down more than 105 points earlier in the session.
Broader indexes were mixed. The Standard & Poor’s 500 index was down 4.08, or 0.35%, at 1,178.57, and the Nasdaq composite index gained 4.90, or 0.23%, to 2,106.87.
Even stabilising crude oil futures failed to assuage investors’ concerns. A barrel of light crude settled at 49.76, up 32 cents, on the New York Mercantile Exchange.
Instead, Wall Street was focused on the dollar, prompted by Fed Chairman Alan Greenspan’s warning earlier this month that foreign investors could reduce their US bond holdings should the dollar remain weak. Greenspan blamed a spiralling trade deficit and continued federal budget deficits for international investors’ reactions.
Some analysts, however, thought Greenspan’s warning, instead of helping matters, prompted increased speculation in both currency and bond markets, with the dollar falling to record lows against the euro last week. That, in turn, scared off stock investors, said Joe Battipaglia, chief investment officer at Ryan Beck & Co.
“His statement didn’t help whatsoever,” Battipaglia said.
The selloff on Wall Street was also prompted by a drop in the government bond market, where there were fears of foreign bondholders abandoning Treasury bills as the dollar continues to weaken.
Ten-year treasury notes fell 71.875 cents to 99.34375, with the yield rising from 4.23% to 4.33%. At its next meeting, the Fed is widely expected to raise the benchmark interest rate by a quarter percentage point to 2.25%.
Many investors held out hope for better economic news this week, with a reading of the nation’s gross domestic product coming tomorrow and the Labour Department’s jobs creation report on Friday.
“This is a huge week from an economic release standpoint, and we’ll have a lot of datapoints to get through before we’ll be able to see if this rally we’ve had can continue,” said Hans Olsen, managing director and chief investment officer at Bingham Legg Advisers. “If we see enough positives, we could have reason for cheer on Friday.”
Wal-Mart’s sales suffered because the discount retail giant offered fewer discounts than many of its competitors, and investors were not pleased with the results. Wal-Mart tumbled 2.17 to 53.15.
Other retailers fared better in holiday sales, but many remained under pressure due to Wal-Mart’s report. Target slipped 31 cents to 51.90, JC Penney & Co dropped 65 cents to 39.91, Sears Roebuck & Co. lost 1.88 to 52.42, and Kmart fell 5.38 to 102.01.
Apple Computer surged 3.89, or 6.03%, to 68.44 after Merrill Lynch analysts said holiday sales of its iPod music player will give the computer and electronics company a strong boost. Merrill Lynch raised its price target on Apple to 77 from 66 per share.
IBM and Sony have collaborated on a new semiconductor specifically designed for home entertainment products, according to The Wall Street Journal. The two companies are reportedly ready to announce a limited production run for the chip, the newspaper said. IBM rose 78 cents to 95.50, while Sony gained 40 cents to 36.37.
Declining issues outnumbered advancers by nearly 5 to 4 on the New York Stock Exchange, where volume was moderate.
The Russell 2000 index of smaller companies was up 3.30, or 0.52 %, at 634.46.
