Renewed rate worries dog Wall Street

/ Source: The Associated Press

Wall Street waffled through an indecisive session Thursday, closing mixed as better-than-expected earnings from companies like Apple Computer and Citigroup were once again eclipsed by investors’ growing anxiety over interest rates.

Financial and tech shares showed particular weakness, while large drug stocks posted gains as investors sought safety in consumer staples, energy and health care, which have historically done well when rates are rising. The market’s muted reaction to earnings news did not surprise analysts, who said share prices already reflect most of the gains that were expected for the first quarter.

“The markets were too enthusiastic, too far ahead of earnings, and they had not factored in other influences — a close election, geopolitics, interest rate changes — and the result is this volatility,” said Subodh Kumar, chief investment strategist for CIBC World Markets.

The Dow Jones industrial average finished Thursday up 19.51 points, or 0.2 percent, at 10,397.46, while the broader Standard & Poor’s 500 index was up 0.67 point, or 0.1 percent, at 1,128.84.

Technology stocks fell sharply, largely weighed down by semiconductor issues. The tech-rich Nasdaq composite index declined 22.68 points, or 1.1 percent, to 2,002.17.

Buyers were also scarce in the bond market, where the yield on the 10-year Treasury note rose to 4.40 percent, from 4.37 percent Wednesday. The selling was not dramatic, compared to recent weeks, but bond prices were still “moving in the wrong direction,” said Brian Pears, head equity trader at Victory Capital Management in Cleveland.

“It’s fair to say equity traders have become somewhat obsessed with the performance of the 10-year note,” Pears said. “The macro issues — what’s happening with the economy — are swamping the more micro issues of earnings for individual companies, which by and large have been fantastic.”

The stock market has skidded this week as investors contrast good earnings and equity fundamentals against fears about what recent economic data will mean for interest rates. Strong retail sales and inflation worries have forced analysts to rethink the idea that the Federal Reserve will keep rates at their current lows until next year.

“I think you’re seeing some struggling because people are saying ’Geez, if interest rates rise that soon, that’s going to be a drag for the stock market,”’ said Janna Sampson, director of portfolio management at Oakbrook Investments. “That’s why you’re seeing a rotation into what we’d call safer stocks. ... They have safer earnings growth, stronger balance sheets, less debt, and may be less impacted by rising rates.”

Before the open, the Labor Department said the number of Americans applying for initial jobless claims jumped by 30,000 to 360,000 last week, hitting their highest level since early February.

But most analysts were not overly worried about the weekly jobless claims data, noting that unemployment claims are often volatile at the start of a quarter and last week's number may have been impacted by seasonal factors over the Easter holiday.

Pharmaceutical stocks were among the day’s biggest gainers, and kept the Dow from sinking. Merck & Co. was up $1.54 at $46.98, Pfizer Inc. added $1.53 to $37.34 and Johnson & Johnson gained $1.92 to $54.52.

In contrast, investors continued to batter rate-sensitive financial stocks. Citigroup, the nation’s largest financial institution, lost $1.03 to $49.92, despite soundly beating analysts’ estimates and saying it expects continued growth as the economy strengthens.

Chip stocks were also vulnerable. Advanced Micro Devices Inc. lost 90 cents to $16.22, although it beat expectations.

Texas Instruments Inc. fell 66 cents to $28.02 despite matching Wall Street’s profit expectations, posting strong semiconductor sales and issuing a modestly bullish forecast. The company, which makes chips used in half the world’s mobile phones, has lagged since its biggest customer, Nokia, warned of a sales slowdown.

Among the biggest tech gainers, Apple soared $2.66, or 10 percent, to $29.30 as huge demand for its iPod portable digital music players helped it easily beat Wall Street expectations. Computer sales also continued to boost profits, but Apple’s worldwide share of the PC market has declined in recent years.

Advancing issues slightly outnumbered decliners on the New York Stock Exchange. Volume was light. The Russell 2000 index, which tracks smaller company stocks, closed the day down 1.72 points, or 0.3 percent, at 580.30.

Overseas, Japan’s Nikkei stock average finished 2.5 percent lower Thursday. In Europe, France’s CAC-40 closed down 0.2 percent, Britain’s FTSE 100 added 0.5 percent and Germany’s DAX index was down 0.2 percent in late-day trading.