Star-Bulletin news services
Rally evaporates
over rate worries
NEW YORK >> Economic uncertainty overshadowed a peaceful and early transfer of power in Iraq yesterday, cutting off a rally and leaving stocks modestly lower while investors fretted about the Federal Reserve's imminent decision on interest rates.
Investors had worried that the transfer in Iraq would be sabotaged by terrorists, and were cheered at the surprise move, which was originally scheduled for tomorrow. Oil prices also fell sharply on the news, further boosting stocks.
However, investor enthusiasm waned in anticipation of the Fed meeting today and tomorrow, and in response to a strong consumer spending report that fueled inflation worries. And a series of bombings in Baghdad, after the session closed, could also weigh on stocks when trading resumes today.
"Clearly this event (the transfer of power) stirred a great deal of confidence and optimism, but that can be a fleeting thing," said Hugh Johnson, chief investment officer at First Albany Corp. "Now that this is over with, you can expect investors to focus on what really counts this week, such as all the economic data coming out."
The Dow Jones industrial average fell 14.75, or 0.1 percent, to 10,357.09. The Dow had been up as much as 92 points earlier in the session.
Broader stock indicators were modestly lower. The Standard & Poor's 500 index was down 1.08, or 0.1 percent, at 1,133.35, and the Nasdaq composite index dropped 5.65, or 0.3 percent, at 2,019.82.
The price of the Treasury's 10-year note closed down 2532 point, while its yield rose to 4.75 percent from 4.64 percent Friday. Two-year Treasury notes fell 1/4 point and yielded 2.86 percent, up from 2.74 percent Friday.
According to the Commerce Department, consumer spending rose by 1 percent in May, far more than the 0.2 percent increase in April. The May figure was the largest increase since October 2001. Incomes rose by 0.6 percent in May, the second straight month of increases.
However, with spending on the rise, pricing power shifts to companies eager to raise prices to continue their stellar quarterly earnings trends. But that can also lead to inflation.
"I think these numbers were good, but it's been scaring the inflation bears just a little," said Ken Tower, chief market strategist for Schwab's CyberTrader. "But with the Fed meeting (tomorrow,) I think we'll start to see things pick up even more through the rest of the week and we can really start a nice rally here."
In addition to the Federal Reserve decision tomorrow, investors were looking to manufacturing data, unemployment figures and the latest job creation data later in the week.
Wal-Mart Stores Inc. cut its second-quarter sales forecasts before the session, blaming bad weather and a slow Father's Day.
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