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Wall Street gives up earlier surge

Wall Street gave up a big advance and turned lower Monday, as investors suffered a renewed case of the jitters ahead of the Federal Reserve’s meeting on interest rates later this week.
/ Source: The Associated Press

Wall Street gave up a big advance and turned lower Monday, as investors suffered a renewed case of the jitters ahead of the Federal Reserve’s meeting on interest rates later this week.

The stock market, which has seen huge swings in recent weeks, was initially relieved to hear from the National Association of Realtors that existing home sales declined in May by only 0.3 percent to 5.99 million units. The tepid reading was expected, and indicated that the housing sector is still weak — the pace of existing home sales was the slowest in four years; housing inventories rose by 5 percent to the highest level since 1992; and the median home price fell for a record 10th consecutive month.

The data wasn’t enough to keep the stock market afloat, so when crude oil prices rose back above $69 a barrel on news of U.S. refinery outages, many investors chose to take money off the table. High energy prices could translate to accelerating inflation — which investors fear the Fed may use as a reason to raise interest rates later in the year. The Fed is scheduled to meet this Wednesday and Thursday.

“Without much of a catalyst right now, profit-taking from that big rise earlier this morning is what we’re seeing. The stock market doesn’t like uncertainty,” said Matt Kelmon, portfolio manager of the Kelmoore Strategy Funds.

He added that Wall Street is growing concerned again about the troubles surrounding subprime lending, or lending to people with poor credit histories. Bear Stearns Cos. said last week that two of its hedge funds nearly collapsed after betting on complex securities backed by subprime mortgages; Bear Stearns’ stock fell more than 3 percent Monday.

The Dow Jones industrial average closed the day down 8.21 points, or 0.06 percent, after rising more than 100 points earlier in the day, and falling 185 points on Friday.

The broader Standard & Poor’s 500-stock index fell 4.82 points, or 0.32 percent, and the Nasdaq composite index lost 11.88 points, or 0.46 percent.

A retreat in Treasury yields failed to calm the stock market Monday. The 10-year Treasury note’s yield fell to 5.08 percent from 5.14 percent late Friday, dampened by worries about mortgage-backed securities. If high-risk investments are souring, investors tend to buy up safe-haven Treasury issues.

Soaring yields have played a starring role in the stock market’s volatility this month, because higher rates can slow down corporate activity; the 10-year yield’s climb above 5 percent knocked the Dow from a record high reached June 4, and since then, stocks have been rising and falling fitfully as investors attempt to determine interest rates’ direction.

Last week, the three major indexes posted sizable losses: the Dow dropped 2.1 percent, the S&P declined 2 percent and the Nasdaq dipped 1.4 percent.

Central bankers are widely expected to keep the benchmark rate steady at 5.25 percent Thursday, but Wall Street is unsure if the Fed will alter its stance on inflation, which could mean a rate hike or decrease later in the year.

On Tuesday, investors will be closely reading the Conference Board’s June consumer confidence index and the Commerce Department’s report on May new homes sales. So far, despite the weak housing market, the economy appears to be on the rebound.

“My sense is consumption is still reigning — consumer sales are up,” said Richard Hoyt, market strategist at KDV Wealth Management, pointing to the Commerce Department’s report earlier this month that May retail sales jumped by 1.4 percent.

But even if economic data keep coming in strong, analysts predict high volatility in the stock market ahead of second-quarter earnings season, which begins in earnest in mid-July.

On Monday, the dollar rose against the euro and pound but fell against the yen. Gold prices fell.

Crude oil futures rose 4 cents to settle at $69.18 a barrel on the New York Mercantile Exchange, after falling to $68 a barrel and then rising after news of refinery outages.

Gasoline futures also advanced, reigniting worries that pump prices could bounce back above $3 a gallon. U.S. retail gasoline prices have retreated to an average $2.978 a gallon Monday, below the record high of $3.227 reached in late May, according to AAA and the Oil Price Information Service.

Blackstone Group LP — the private-equity powerhouse that went public on Friday — fell $2.62, or 7.5 percent, to $32.44 in its second day of trading. Investors were concerned about valuation of the company, and also speculation that big buyout deals might begin to dry up.

In other corporate news, Rupert Murdoch was said to be near a pact to guarantee editorial independence of The Wall Street Journal if News Corp. acquires Dow Jones & Co., according to newspaper reports Sunday. Dow Jones fell $1.30, or 2.2 percent, to $57.70, while News Corp rose 18 cents to $23.50.

Overseas, Japan’s Nikkei stock average fell 0.56 percent. Britain’s FTSE 100 rose 0.32 percent, Germany’s DAX index fell 0.24 percent and France’s CAC-40 fell 0.34 percent.