Wall Street falls ahead of Fed rate decision
NEW YORK » Wall Street pulled back yesterday as investors uneasy after a drop in consumer confidence traded cautiously ahead of the Federal Reserve's rate decision.
After the Fed's half-point reduction in September, most investors expect the central bank to deliver a quarter-point cut at the conclusion of its two-day meeting today.
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 halt 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.
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.
"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 any more, 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.
Following last week's news of a significant decline in existing home sales and Standard & Poor's report yesterday 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.
The Dow Jones industrial average fell 77.79, or 0.56 percent, to 13,792.47.
Broader stock indicators were mixed. The S&P 500 index fell 9.96, or 0.65 percent, to 1,531.02, while the Nasdaq composite index fell 0.73, or 0.03 percent, to 2,816.71.
The Russell 2000 index of smaller companies fell 5.57, or 0.68 percent, to 816.15.
Declining issues outnumbered advancers by about 5 to 3 on the New York Stock Exchange, where volume came to a relatively light 1.22 billion shares, the same as Monday.
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.
Crude oil prices retreated $3.15 to settle at $90.13 a barrel, after hitting a record yesterday above $93 a barrel. Gold also fell.
The dollar declined against most major currencies, except the yen.
Merrill Lynch's chairman and chief executive, Stan O'Neal, retired yesterday as expected after the brokerage last week posted the biggest quarterly loss in its 93-year history. Merrill Lynch fell $1.86, or 2.8 percent, to $65.56.