Wall Street turned in a mixed performance Tuesday as investors traded cautiously ahead of the Federal Reserve’s Wednesday decision on interest rates.
The Fed, facing a faltering economy but also rising inflation, is expected to cut interest rates by another quarter point after its two-day meeting concludes Wednesday. Many investor believe policy makers will then signal that they are planning to hold rates steady for a while.
Consumers have been worried about inflation because it means energy and grocery bills are harder to pay. Wall Street is also concerned, because inflation tends to curtail consumer spending, which accounts for more than two-thirds of the U.S. economy.
The Conference Board said Tuesday its April index of consumer confidence fell for the fourth straight month because of heightened disappointment about soaring prices and the weakening job market.
“There’s no panic out there (in the market) because of the consumer confidence numbers, but there is more concern about inflation then we had just a few weeks ago,” said Jim Herrick, director of equity trading at Baird & Co. “Everyone is interested in what the Fed will do about it.”
The Dow Jones industrial average fell 39.81, or 0.31 percent, to 12,831.94.
The biggest drag on the Dow was the component Merck & Co., which sank $4.30, or 10.4 percent, to $37.14 after saying the Food and Drug Administration refused to approve a new cholesterol drug called Cordaptive.
Broader markets were mixed. The Standard & Poor’s 500 index dipped 5.43, or 0.39 percent, to 1,390.94, and the Nasdaq composite index rose 1.70, or 0.07 percent, to 2,426.10.
A pullback in oil prices Tuesday eased inflationary concerns a bit, and helped keep the stock market from tumbling sharply. But some analysts say the market has been deceptively calm in recent weeks given the weakness of the economy and how consumers are struggling not only with a slumping housing and job market but also high prices.
“So far, investors have bought into the notion that the Federal Reserve has staved off a wider calamity, when in fact what they’ve done is allow financial system to stay afloat as they work down, write down, a tremendous amount of bad debt,” said Joseph V. Battipaglia, chief investment officer at Ryan Beck & Co.
Slashing the key rate by more than half since last summer has not trickled down to consumers’ borrowing rates, he noted, and instead has “punted the dollar. It’s sparked commodity runs. It has translated to spikes in food and energy costs for the public at exactly the wrong time.”
Bond prices were little changed. The yield on the benchmark 10-year Treasury note, which moves opposite its price, was at 3.82 percent, unchanged from late Monday.
Oil prices fell amid expectations that a supply disruption in Britain would soon be resolved and as the U.S. dollar strengthened further against the euro. Light, sweet crude for June delivery fell $3.12 to $115.63 a barrel on the New York Mercantile Exchange.
Falling energy prices helped lift airline stocks. Continental Airlines Inc. rose 60 cents, or 3.5 percent, to $17.56, Southwest Airlines Co. rose 42 cents, or 3.3 percent, to $13.33, and AMR Corp., the parent of American Airlines, rose 79 cents, or 10.2 percent, to $8.53, after Citigroup analyst Andrew Light said AMR stands to gain from industry consolidation even though the company itself is unlikely to merge.
But Wall Street was pressured by a report from research firm RealtyTrac that showed the number of U.S. homes heading toward foreclosure more than doubled in the first quarter from a year earlier.
And earnings reports came in mixed.
On the positive side, Lear Corp. reported a first-quarter profit rise, lifted its 2008 sales outlook, and backed its earnings prediction for the year. The auto supplier rose $5.08, or 19.2 percent, to $31.50.
MasterCard Inc. spiked $31.48, or 13 percent, to $273.98 after reporting that profit more than doubled in the first quarter, and rival Visa Inc. rebounded from an early decline to rise $5.25, or 6.9 percent, to $80.88 after reporting late Monday its first-quarter profit increased 28 percent.
Both card processors said cardholder use rose moderately in the United States, and particularly quickly abroad.
But profit woes are not over for financial institutions with big exposure to consumer debt.
Countrywide Financial Corp., the nation’s largest mortgage lender and servicer, said it lost $893 million during the first quarter due to a sharp increase in its provisions for unpaid home mortgage loans. The latest results marked the third consecutive quarterly loss for Countrywide, which agreed in January to sell itself to Bank of America Corp. for about $4 billion in stock.
Shares of the lender rose 2 cents to $5.85, while Bank of America fell 32 cents to $37.86.
Deutsche Bank AG said it wrote down $4.2 billion in leveraged loans, commercial real estate and mortgage-backed securities during the first quarter, pushing Germany’s biggest bank to its first quarterly loss since 2003.
The Russell 2000 index of smaller companies fell 6.44, or 1.89 percent, to 718.93.
Declining issues surpassed advancers by about 10 to 7 on the New York Stock Exchange, where volume was 1.23 billion shares.
Overseas, Japan’s Nikkei stock average rose 0.22 percent. Britain’s FTSE 100 fell 0.02 percent, Germany’s DAX index fell 0.58 percent, and France’s CAC-40 shed 0.71 percent.