Investors wary ahead of Fed’s rate decision
NEW YORK » Wall Street turned in a mixed performance yesterday as investors traded cautiously ahead of the Federal Reserve's decision today on interest rates.
The Fed, facing a faltering economy but also rising inflation, is expected to cut interest rates by another quarter point after its two-day meeting concludes today. Many investor believe policy makers will then signal that they are planning to hold rates steady for a while.
The Dow Jones industrial average fell 39.81, or 0.31 percent, to 12,831.94.
The biggest drag on the Dow was the component Merck & Co., which sank $4.30, or 10.4 percent, to $37.14 after saying the Food and Drug Administration refused to approve a new cholesterol drug called Cordaptive.
Broader markets were mixed. The Standard & Poor's 500 index dipped 5.43, or 0.39 percent, to 1,390.94, and the Nas- daq composite index rose 1.70, or 0.07 percent, to 2,426.10. The Russell 2000 index of smaller companies fell 6.44, or 1.89 percent, to 718.93. Declining issues surpassed advancers by about 10 to 7 on the New York Stock Exchange, where consolidated volume rose to 3.66 billion shares compared with 3.47 billion shares Monday.
A pullback in oil prices yesterday eased inflationary concerns a bit, and helped keep the stock market from tumbling sharply. But some analysts say the market has been deceptively calm in recent weeks given the weakness of the economy and how consumers are struggling not only with a slumping housing and job market but also high prices.
"So far, investors have bought into the notion that the Federal Reserve has staved off a wider calamity, when in fact what they've done is allow financial system to stay afloat as they work down, write down, a tremendous amount of bad debt," said Joseph V. Battipaglia, chief investment officer at Ryan Beck & Co.
Slashing the key rate by more than half since last summer has not trickled down to consumers' borrowing rates, he noted, and instead has "punted the dollar."
"It's sparked commodity runs," he said. "It has translated to spikes in food and energy costs for the public at exactly the wrong time."
Bond prices were little changed. The yield on the benchmark 10-year Treasury note was at 3.82 percent, down from 3.83 late Monday.
Oil prices fell amid expectations that a supply disruption in Britain would soon be resolved and as the U.S. dollar strengthened further against the euro. Light, sweet crude for June delivery fell $3.12 to $115.63 a barrel in New York.
MasterCard Inc. spiked 13 percent, to $273.98 after reporting that its profit more than doubled in the first quarter, and Visa Inc. rebounded from an early decline to rise 6.9 percent, to $80.88 after reporting Monday its first-quarter profit increased 28 percent.
Countrywide Financial Corp., the nation's largest mortgage lender and servicer, said it lost $893 million during the first quarter due to a sharp increase in its provisions for unpaid home mortgage loans.
The latest results marked the third consecutive quarterly loss for Countrywide, which agreed in January to sell itself to Bank of America Corp. for about $4 billion in stock. Shares of the lender rose 2 cents to $5.85, while Bank of America fell 32 cents to $37.86.