Stocks dip ahead of Fed rate meeting
NEW YORK » Stocks fell moderately yesterday as Wall Street anxiously awaited the Federal Reserve's impending decision on interest rates.
The market is betting on a rate cut from the Fed when the central bank meets today, but investors are not completely sure what it will do and what it will say in its accompanying economic statement.
Adding to the uneasiness, Northern Rock PLC, Britain's fifth-largest mortgage lender, saw its stock plunge and customers withdraw billions of dollars after it issued a profit warning Friday and drew on emergency funds from the Bank of England.
The Dow Jones industrial average fell 39.10, or 0.29 percent, to 13,403.42.
Broader stock indicators showed somewhat steeper losses. The Standard & Poor's 500 index fell 7.60, or 0.51 percent, to 1,476.65, and the Nasdaq composite index lost 20.52, or 0.79 percent, to 2,581.66. The Russell 2000 index, which tracks small company stocks, fell 7.68, or 0.98 percent, to 775.81.
Bonds rose modestly, pushing the yield on the 10-year Treasury note down to 4.47 percent from 4.48 percent late Friday.
Volume on the New York Stock Exchange was among the lightest of any day this year, indicating that many market participants were staying on the sidelines ahead of the Fed's decision.
Some 1.11 billion shares were traded, down from 1.2 billion on Friday.
Declining issues outnumbered advancers by more than 2 to 1 on the NYSE.
Crude oil prices rose $1.47 to settle at a record $80.57 per barrel on the New York Mercantile Exchange. Crude closed over $80 for the first time last week; oil futures also set a trading record yesterday, moving as high as $80.70.
Talk from former Fed Chairman Alan Greenspan of the possibility of a recession amid high inflationary pressures also elevated Wall Street's jitters. In an interview with NBC before the markets opened yesterday, he said that the risk of a recession is higher than it was at the beginning of the year, but not by much.
Also weighing on sentiment was an announcement of job cuts at Merrill Lynch & Co.'s First Franklin Financial Corp. Merrill fell $1.83, or 2.5 percent, to $72.82.
It's possible the Fed won't go through with a rate cut at all, if it believes the economy is still growing moderately and that inflation remains a threat, but most investors expect the Fed to cut the bench mark federal funds rate by at least a quarter-point. And because negative economic data have trickled in over the last couple weeks, some anticipate a half-point rate cut.
"A quarter-point is going to be disappointing. It's already priced in," said Ryan Detrick, technical strategist at Schaeffer's Investment Research.
But the Fed probably won't want to lower rates by more than that, he said, and the central bank may not indicate in its statement that more reductions are in the offing.
"The big issue is gold and oil have been spiking higher, which people could argue is inflationary, but economic data has been weak. The Fed's in a tough place," he said.