Stocks stumbled Thursday, as mixed economic news and further hints of higher interest rates from Federal Reserve Chairman Alan Greenspan kept buyers at bay.
The Fed chairman offered a modest endorsement of President Bush’s idea of setting up private retirement accounts for younger workers in testimony before the House Financial Services Committee, but said that alone won’t solve Social Security’s long-term problems. Reiterating remarks made to a Senate panel Wednesday, Greenspan said the economy continues to expand at a respectable pace, and that inflation, while not an immediate threat, remains something policy-makers must guard against. There were few surprises in his comments, but analysts said they served as a reality check for investors.
“Greenspan is doing a good job of preparing American investors for what’s ahead: We’re in a period of rising interest rates and that’s going to continue,” said Thomas F. Lydon Jr., president of Global Trends Investments in Newport Beach, Calif. “He’s done an excellent job of balancing the hikes, letting people know it’s going to continue, and the market’s done a good job of factoring that in. I don’t think anything he’s saying is shocking anybody.”
The Dow Jones industrial average was off 80.62 points, or 0.7 percent, at the close of trading, while the broader Standard & Poor’s 500-stock index was down 9.59 points, or 0.8 percent. The Nasdaq composite index fell 26.09 points, or 1.3 percent.
Oil declined 79 cents to $47.54 on the New York Mercantile Exchange as traders weighed OPEC’s forecast of rising global demand against reports of increased U.S. crude inventories. The dollar softened against the euro, gold prices rose and long Treasuries fell. The price of the 10-year note fell, while its yield rose to 4.19 percent, up from 4.16 percent Wednesday.
Analysts attributed the day’s trading to a lack of certainty about the strength of the economy, the pace of inflation and how much higher interest rates will go. The prospect of higher rates and questions about how much they will slow down the economy is making many investors wary of taking big bets, said John P. Waterman, chief investment officer at Rittenhouse Asset Management.
“There’s always the risk that the Fed steps on the brakes too hard,” Waterman said. “We’re in kind of a delicate transition. We’re trying to get from a recovery mode to a more sustainable mode. Once you get through that, and investors become convinced the economy is going to settle into a sustainable growth mode, then I think the market will start to do better. But we’re in a digestion period right now.”
Jobless claims were down for a third straight week, the Labor Department reported, as the number of laid-off workers filing for unemployment benefits dropped to the lowest level in more than four years. The decline surprised economists, who had forecast an increase. The data served as fresh evidence of continuing improvements in the labor market.
In another report, the department said prices for imported goods rose by 0.9 percent in January as foreign petroleum prices jumped 4.6 percent and the price of non-petroleum imports edged up 0.2 percent. Import prices are expected to continue rising this year as the weaker dollar makes foreign products more expensive for Americans.
Separately, the Conference Board reported that its Index of Leading Economic Indicators slipped 0.3 percent last month after gaining 0.3 percent in December. The decline was blamed on a jump in energy prices, the weaker dollar and cautious business attitudes.
Wal-Mart Stores Inc. was up 10 cents at $52.70 after the world’s largest retailer posted a 16.2 percent increase in profits for the fourth quarter, beating Wall Street expectations. Its earnings for the full year topped $10 billion for the first time. Wal-Mart president and chief executive Lee Scott called it a solid performance but added, “we can do better.”
The nation’s second-largest discount chain, Target Corp., rose $1.09 to $50.16 after its fourth-quarter earnings edged up 0.1 percent over a year ago due to slightly improved margins and higher sales, which helped offset lease accounting adjustments. Target’s profits results beat Wall Street forecasts by a penny.
Hewlett-Packard Co. was down 20 cents at $20.86 after the beleaguered computer maker reported a minuscule increase in net income a week after the company’s board ousted chief executive Carly Fiorina. Profit margins at its low-margin printer and paper businesses slipped, and interim CEO Robert Wayman told analysts “there is work to be done.” Excluding charges, HP’s earnings results beat analysts’ estimates by a penny.
Medtronic Inc. added 2.8 percent, or $1.46, to $53.26, after it reported a 17 percent rise on quarterly earnings. The medical device maker benefited from strong sales of implantable defibrillators and spinal products, and the weak dollar. Its earnings matched the average estimate of analysts polled by Thomson First Call.
Overseas, Japan’s Nikkei average shed 0.2 percent. In Europe, France’s CAC-40 fell 0.1 percent, Britain’s FTSE 100 rose 0.1 percent and Germany’s DAX index added 0.02 percent.