Consumer mood pushes stock market down
NEW YORK - Wall Street pulled back today as investors, uneasy after a drop in consumer confidence numbers, traded cautiously ahead of the Federal Reserve’s rate decision.
The Dow Jones industrial average fell 77.79 to 13,792.47.
Microsoft, one of the 30 Dow stocks, gained $1 to close at $35.57 a share. Boeing, also a Dow stock, added 34 cents to $97.33.
Broader stock indicators slipped. The S&P 500 index fell 9.96 to 1,531.02, while the Nasdaq composite index fell 0.73 to 2,816.71.
After the Fed’s half-point rate reduction in September, most investors expect the central bank to deliver a quarter-point cut at the conclusion of its two-day meeting Wednesday.
But inflation remains a threat. Crude oil prices fell today, but only after hitting a record a day earlier, and meanwhile, the dollar has been tumbling. So a rate cut - much less additional decreases in the coming months - is not a given.
Some on Wall Street fear economic growth could be halted if rates aren’t lowered, given the troubles in housing and credit. The statement the Fed issues alongside its rate decision will be closely read for clues about future moves.
“We don’t think the economy’s about to slip into recession. The corporate portion of the economy is still in pretty good shape,” said Phil Orlando, chief equity market strategist at Federated Investors. “However, should the Fed choose not to cut anymore, and the economy continue to slip, that potentially could raise some concerns for us.”
Most earnings have been coming in better than expected over the past few weeks, particularly in the technology sector. But consumers, the key drivers of the economy, appear to be flagging.
After last week’s news of a significant decline in existing-home sales and Standard & Poor’s report today of home prices sinking further, the Conference Board said its index of consumer confidence fell to its lowest level in two years in October. The index came in at 95.6, below the consensus estimate of 99.5 and down from a revised reading of 99.5 in September.
Treasury bond prices were little changed ahead of the Fed decision. The yield on the 10-year Treasury note, which moves inversely to its price, was at 4.38 percent, flat with late Monday.
The market remains nervous that even if the Fed decreases the target fed funds rate by a quarter-point or half-point, the move may not end up helping the credit and housing markets. It’s not the price of borrowing that’s deterring investors, many say; demand has waned because of worries about the quality of the underlying assets.
Furthermore, the central bank must walk a narrow line between keeping investors calm and acknowledging the problems out there - particularly for the banks and brokerages that could see more big losses if portions of the credit market, like asset-backed commercial paper, don’t improve.
“Providing the superficial image of stability when everybody realizes things aren’t normal just doesn’t work,” said Axel Merk, manager of the Merk Hard Currency Fund.
Some disappointing financial reports from Procter & Gamble and Qwest, as well as a management shake-up at Merrill Lynch, gave the market little reason to buy ahead of the Fed meeting. Merrill Lynch fell $1.86, or 2.8 percent, to $65.56.
Procter & Gamble was the biggest loser among the 30 Dow components after cautioning that higher commodity costs will squeeze second-quarter margins. P&G fell $2.88, or 4 percent, to $68.95.
Although Qwest reported a third-quarter profit jump, its shares tumbled $1.12, or 13.7 percent, to $7.06. Overall revenue dipped, and the telecommunications company provided few details about its outlook.
The technology-dominated Nasdaq performed better than the other indexes, helped by ongoing strength in such bellwethers as Microsoft, Apple and Google. Apple rose $1.91 to $187; and Google rose $15.54, or 2.3 percent, to $694.77.
Crude oil prices retreated $3.15 to settle at $90.13 a barrel, after hitting a record on Monday above $93 a barrel. Gold also fell.