Wall Street gave up a substantial early gain and staggered to a mixed finish Tuesday after a Federal Reserve official warned that interest rates might continue to climb.
The Dow Jones industrial average had surged more than 100 points by mid-session before Federal Reserve Bank of Atlanta President Jack Guynn said in a speech that the Fed’s Open Market Committee was not yet ready to stop its policy of modest rate hikes. Guynn’s comments sent stocks lower in afternoon trading.
It was an earlier, bullish assessment of the economy from Fed Chairman Alan Greenspan that triggered the initial advance.
In a speech broadcast at a meeting of central bankers in Beijing late Monday, Greenspan said the economy would remain strong, even as global long-term interest rates are low, and intimated that the Fed could soon stop raising the nation’s benchmark rate, at least for the short term. He also encouraged China to unpeg its currency, the yuan, from the U.S. dollar; some investors believe the yuan has unfairly weighed on the greenback in international markets.
Analysts also said the market’s early gain didn’t have enough fundamental strength behind it.
“We had a nice rally this morning off of Greenspan’s comments, but we were really just up on fluff,” said Todd Leone, managing director of equity trading at SG Cowen Securities. “There’s not a lot of money flowing into the market, and when we hit the top of our range, we just bounced off it.”
The Dow Jones industrial average finished the day up 16.04 points, or 0.2 percent, having rallied over 111 points earlier in the day. The broader Standard & Poor’s 500-stock index was also off its highs, closing down a fraction of a point, while the Nasdaq composite index lost 8.60 points, or 0.4 percent.
Oil prices slid for a second straight session, with a barrel of light crude settling at $53.76, down 73 cents, on the New York Mercantile Exchange.
Despite the lower oil prices and Greenspan’s remarks, the light trading volume made it difficult for the markets to hold on to their early gains. And with seemingly dueling comments from the Fed committee members, investors remained confused as to whether the economy was headed for a harsh slowdown and whether the Fed would continue raising interest rates through the summer.
“The cross currents here are nothing like I’ve ever seen,” said Brian Pears, head equity trader at Victory Capital Management in Cleveland. “There’s a lot of confusion and uncertainty over everything — the dollar, interest rates, oil, all sorts of things.”
In company news, General Motors Corp. said it will cut 25,000 jobs by 2008 as it attempts to rein in spending. Chief Executive Rick Wagoner said the company expects to close additional assembly and component plants as well. GM gained 31 cents to $30.73.
Wall Street firm Morgan Stanley edged 3 cents higher to $49.14 even though another top employee left the company. Managing director David Topper, a 22-year veteran, resigned to work for JPMorgan Chase & Co. as co-head of its U.S. equity capital markets position, according to The New York Times. JPMorgan Chase slid 3 cents to $35.48.
Sears Holding Corp. posted a loss for the quarter, its first earnings report since Kmart Holding Corp. merged with Sears, Roebuck and Co. The company lost 7 cents per share, though would have turned a profit without one-time acquisition charges. Sears tumbled $13.41 to $141.50.
After moving higher most of the session, Albertson’s Inc. slipped 5 cents to $21.45 as the nation’s second-largest grocery store chain tripled its quarterly earnings from a year ago. Albertson’s credited the addition of the Shaw’s chain as well as continued recovery in southern California from last year’s grocery worker strike.
With the third quarter ending this month, companies are starting to issue forecasts for their results. ConAgra Foods Inc. slid $1.41 to $24.48 after the company said it could miss Wall Street’s quarterly earnings targets by as much as 10 cents per share. The food processor is also cutting several hundred jobs in an effort to save up to $100 million a year.
Monsanto Co., on the other hand, increased its profit forecasts due to stronger sales, though the agricultural products maker said its one-time charges related to recent acquisitions would increase. Monsanto gained $2.83 to $61.63.
Overseas, Japan’s Nikkei stock average fell 0.47 percent. In Europe, Britain’s FTSE 100 was up 0.9 percent, France’s CAC-40 rose 0.83 percent for the session, and Germany’s DAX index climbed 1.53 percent.