Stocks retreat on weak earnings from Alcoa
NEW YORK » Stocks pulled back yesterday after aluminum producer Alcoa Inc. kicked off earnings season with a weaker-than-expected profit report and minutes from the Federal Reserve's last meeting stoked concerns about the economy.
Stocks fell sharply yesterday afternoon following reports that an aircraft crashed into a building in New York City, but rebounded when government officials said the incident didn't appear to be terrorism.
Though earnings news loomed large on Wall Street, many investors had been focused on gaining a clearer picture of where the Fed stood on interest rates and inflation. The Fed minutes dashed hopes, however slim, that the central bank would soon consider lowering interest rates and raised questions about the well-being of the economy.
"These minutes give no hint that the Fed is going to ease. The markets have this kind of dovish Fed in mind that is itching to pull the trigger to cut rates," said Ethan Harris, chief U.S. economist at Lehman Brothers Holdings Inc. "Some of the talk in the stock market about the Fed giving them a little present in the form a rate cut is overly optimistic."
The Dow Jones industrial average fell 15.04, or 0.13 percent, to 11,852.13.
Broader stock indicators also moved lower. The Standard & Poor's 500 index was down 3.47, or 0.26 percent, to 1,349.95, and the Nasdaq composite index was down 7.16, or 0.31 percent, at 2,308.27.
Bond prices fell, with the yield on the benchmark 10-year Treasury note rising to 4.78 percent from 4.76 percent late Tuesday. The dollar was down against other major currencies, while gold prices rose.
The notion that the economy is slowing adequately to reduce inflation has given stocks a boost in recent weeks, helping push the Dow Jones industrial average to a string of record-setting sessions. On Tuesday, the Dow set its fourth record close in two weeks, ending at 11,867.17.
The Fed minutes showed that a slowing economy and falling energy prices guided its decision to hold interest rates steady last month. In August, the Fed wrestled with its decision before ultimately holding rates steady. Before that, it had raised short-term interest rates 17 straight times since 2004 as it sought to curb inflation. Wednesday's minutes indicated that sizable concerns remain about inflation, though the threat is expected to dissipate as the economy slows.
Yesterday's decline occurred despite a report that the federal budget deficit fell to about $247.7 billion in 2006, its lowest level in four years.