Stocks closed mostly lower Tuesday on resurgent fears of rising interest rates. Investors sold as bond yields remained high, government data showed wages rising and a Federal Reserve official warned more interest rate hikes may be needed.
Wall Street was nervously watching the Treasury market after yields surged Monday to their strongest level since June 2004, pushed up by investor worries about inflation in the United States and rising interest rates in Japan and Europe. The yield on the 10-year Treasury note Tuesday fell to 4.73 percent from 4.74 percent late Monday.
Rising interest rates would not only make loans to consumers and businesses more expensive, they could also make bonds a more attractive investment than stocks.
“It seems like the stock market is finally recognizing what happened to the bond market,” said Frank Gannon, senior equity portfolio manager, AIG SunAmerica Mutual Funds.
According to preliminary calculations, the Dow Jones industrial average rose 22.10, or 0.2 percent, to 10,980.69. The 30-stock index gained as companies such as Honeywell International Inc. and Procter & Gamble Co. rose. The Dow Jones industrial average fell 63.00, or 0.57 percent, on Monday.
Broader stock indicators were lower. The Standard & Poor’s 500 index fell 2.38, or 0.19 percent, to 1,275.88, and the Nasdaq composite index fell 17.65, or 0.77 percent, to 2,268.38.
Declining issues led advancers by nearly 3 to 1 on the New York Stock Exchange.
In economic news, wage pressures accelerated at the fastest pace in a year, according to Labor Department data, intensifying inflation concerns. Revised figures from the Labor Department showed the efficiency of American workers declined in the final three months of 2005, the first time that has happened in more than four years.
“The market is looking at that and worrying that inflation may be rekindling as the unemployment rate moves lower,” said Stuart Freeman, chief equity strategist for A.G. Edwards & Sons.
Analysts said investors were also spooked by a hawkish interview with St. Louis Fed President William Poole, published by the Reuters news service. “Should we get the data in coming months that are consistently strong, particularly if there are substantial upside surprises, then that says we’re going to have to step a little harder on the brake,” he said. Poole is not a voting member of the policy-making Federal Open Markets Committee this year.
Poole’s comments and a Lehman Brothers forecast of 5.5 percent federal funds rates, up from the current rate of 4.5 percent, has convinced Wall Street that interest rates are going higher than investors had hoped. The “markets are basically not treating this as an ’if’ scenario but more as a ’done deal’ scenario,” wrote David Rosenberg, Merrill Lynch’s North American economist.
The U.S. dollar was mixed against other major currencies. Gold prices rose.
Crude oil futures fell. A barrel of light crude settled at $61.58, down 83 cents, on the New York Mercantile Exchange.
Honeywell rose 52 cents to $41.38 after the company’s chief financial officer said its free cash flow was increasing and Procter & Gamble rose 63 cents to $60.30 as sentiment about some large-cap stocks changed.
Texas Instruments Inc., the world’s largest supplier of chips for cellular phones, fell $1.07 to $31.26 after it narrowed its first-quarter guidance to the high end of its previous target, disappointing analysts.
Kroger Co., the nation’s largest traditional grocery chain, rose 27 cents to $20.15 after it reported a fourth-quarter profit, reversing a loss in the year-ago period, which included a large goodwill impairment charge. The company also said it would start paying a quarterly cash dividend to investors in June.
Albertson’s Inc., the nation’s second-largest supermarket chain, rose 6 cents to $25.50 after it said its fourth-quarter profit declined 17 percent, weighed down by charges. Excluding special items, profits beat analysts’ expectations.
Krispy Kreme Doughnuts Inc. rose $1.32 to $7.71 after it said it hired Daryl G. Brewster, a former Kraft Inc. executive, as the new president and chief executive of the troubled doughnut chain. Brewster previously served as president of Kraft’s North American snacks and cereals business.
Preliminary consolidated volume on the New York Stock Exchange came to 2.33 billion shares, down from 2.37 billion at the same time Tuesday.
The Russell 2000 index of smaller companies fell 10.10, or 1.38 percent, to 721.06.
Overseas, Japan’s Nikkei stock average fell 1.10 percent, mirroring Wall Street’s decline Monday. Britain’s FTSE 100 fell 0.68 percent, Germany’s DAX index slipped 0.26 percent, and France’s CAC-40 dropped 0.37 percent.