Wall Street ended an erratic session moderately lower Tuesday as concerns grew about the impact of high fuel costs on consumers and corporate profits. Treasury prices rose on the economic uncertainty.
The Conference Board said its June consumer confidence index came in at 50.4, far below economists’ expectation of 56.5 and May’s reading of 58.1. The disappointing news arrived after shipper UPS Inc. warned late Monday that high oil prices are dampening its profits, and after a dismal reading on U.S. home prices.
Crude oil prices rose 26 cents to settle at $137.00 a barrel on the New York Mercantile Exchange, adding to investors’ anxiety.
Wall Street’s overriding concern is that expensive energy will prevent the economy from growing and aggravate inflation at the same time. Given the anemic economy — not to mention the additional debt losses expected at the nation’s biggest banks — the Federal Reserve has little wiggle room to combat inflation with higher interest rates. Policymakers, whose rate-setting meeting began Tuesday and concludes Wednesday, are anticipated to hold the key rate at 2 percent.
“The market has priced in no action from the Fed,” said Jim Herrick, manager of equity trading at Baird & Co. “With the housing market the way it is, and the financial system feeling fragile ... I’d really be surprised if the Fed in this environment would consider raising rates in the near future.”
Financial services stocks were among the top performers. With companies including Merrill Lynch & Co. and Bank of America Corp. at multi-year lows, many traders saw a good opportunity to buy, or at least unwind their bets that the stocks would drop further.
The Dow Jones industrial average fell 34.93, or 0.29 percent, to 11,807.43, after falling more than 100 points in earlier trading and later moving in and out of positive territory. The Dow dropped as low as 11,725.52 — beneath the levels it sank to in March when Bear Stearns Cos. appeared to be on the verge of collapse.
Broader stock indicators also fell. The Standard & Poor’s 500 index declined 3.71, or 0.28 percent, to 1,314.29, and the Nasdaq composite index fell 17.46, or 0.73 percent, to 2,368.28.
Declining issues outnumbered advancers by about 2 to 1 on the New York Stock Exchange, where volume amounted to 1.34 billion shares compared with 1.09 billion shares traded Monday.
Government bonds rose as the weak consumer confidence numbers had investors betting that interest rates would remain stable rather than rising. The yield on the benchmark 10-year Treasury note, which moves opposite its price, slid to 4.09 percent from 4.17 percent late Monday. The dollar fell against other major currencies, while gold prices rose.
In addition to the Fed’s rate decision, the market is waiting to see what policymakers will say about the economy.
“The Fed certainly has done some great things,” said Dan Alpert, managing director at the investment bank Westwood Capital, pointing to the central bank’s expanded lending practices and its role in getting JPMorgan Chase & Co. to buy Bear Stearns.
“But interest rate cuts themselves have gotten them nowhere,” he said. “Home mortgage rates have not gone down. The economy’s growth has not improved. The dollar has tanked further, and that’s cost us a ton on imports. I don’t think they’re going to do a turnaround tomorrow, but I think they’re going to include some inflation language in there.”
The S&P/Case-Shiller index showed Tuesday that U.S. home prices fell in April at the fastest pace since 2000. For the first time, all 20 metropolitan areas measured by the index posted annual declines.
“It’s another milepost in the overall collapse of the real estate economy,” Alpert said. He added that until the housing market bottoms out, there’s likely going to be continued erosion in the financial services sector.
Tuesday did bring some positive company news. Grocery chain Kroger Co. said its fiscal first-quarter profit rose 15 percent thanks to gasoline and food sales offered at a discount, and Eastman Kodak Co. surged after saying it will buy back up to $1 billion, or about a quarter, of its outstanding stock.
Kroger rose $1.82, or 7 percent, to $28.82, while Kodak advanced $1.69, or 13.7 percent, to $14.03.
Meanwhile, rumors that UBS AG could get bought boosted the Swiss bank’s shares. UBS rose $1.43, or 6.9 percent, to $22.03.
Bank of America rose 74 cents, or 2.9 percent, to $26.62 and Merrill Lynch rose 52 cents, or 1.5 percent, to $35.06, after the two stocks hit multi-year lows.
UPS, however, fell $4, or 6 percent, to $62.26 after its profit warning late Monday.
The Russell 2000 index of smaller companies fell 11.89, or 1.65 percent, to 707.92.