Fed comment hurts early market gains
NEW YORK » Wall Street pulled back for the third straight day yesterday as investors still uneasy about the economy sold off after a Federal Reserve official suggested rising inflation could prevent the central bank from making further interest rate cuts.
Although the economic slowdown is a big concern, "we must not lose sight of the other part of the Fed's dual mandate - which is price stability," Federal Reserve Bank of Philadelphia President Charles Plosser said. The economy has been weakening but costs remain high, leading some economists to believe that the United States is headed for a troubling predicament known as stagflation.
Plosser's comments were not surprising, particularly since he is known for being more apt to argue against a rate cut than other Fed members. Nonetheless, the speech - along with a dismal sales report from Macy's - cut short a rebound from Tuesday's plunge that gave the Dow Jones industrials their biggest percentage drop since Feb. 27, 2007.
The reminder about inflation also sapped some of Wall Street's relief over better-than-expected fourth-quarter productivity and labor cost data and profit results from Walt Disney Co.
"There's no smoking gun here; we get one bad number, one good number. .... We're probably going to chop around here until investors get a better feel on this recession-or-no-recession question," said Phil Orlando, chief equity market strategist at Federated Investors.
The Dow fell 65.03, or 0.53 percent, to 12,200.10, after rising more than 100 points in earlier trading.
Broader stock indicators also gave up gains yesterday. The Standard & Poor's 500 index fell 10.19, or 0.76 percent, to 1,326.45, and the Nasdaq composite index fell 30.82, or 1.33 percent, to 2,278.75. The Russell 2000 index of smaller companies fell 9.09, or 1.30 percent, to 692.49.
Declining issues outnumbered advancers by about 5 to 3 on the New York Stock Exchange, where consolidated volume came to 3.89 billion shares, down from 4.18 billion on Tuesday.
Government bond prices remained lower on the stronger-than-anticipated economic data. The yield on the 10-year Treasury note, which moves opposite its price, rose to 3.60 percent from 3.56 percent late Tuesday.
Light, sweet crude oil dropped $1.27 to $87.14 a barrel on the New York Mercantile Exchange.
Macy's Inc. yesterday afternoon said sales at stores open at least a year fell 7.1 percent in January compared to the same month a year ago, worse than expected. The department store operator also said it is cutting 2,550 jobs. Macy's fell $1.16, or 4.6 percent, to $23.94.
Walt Disney Co. posted a 26 percent decline in profit late Tuesday, but the results beat expectations. Disney shares rose $1.43, or 4.8 percent, to $31.50.
Time Warner Inc. yesterday posted a profit decline in its fourth quarter. But excluding the effect of a year-ago gain from the sale of AOL's online access business in Europe, profit rose due to better results at the media conglomerate's cable TV and movie operations. Time Warner rose 31 cents, or 2 percent, to $15.71.