Stocks slip over Fed unease
Investors uncertain about rate moves and the quarterly results of brokerage earnings.
NEW YORK - Stocks fell moderately yesterday as investors 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. Furthermore, with the major brokerages' third-quarter results yet to be released, investors are uncertain how badly the summer's stock downturn, souring home loans, and credit squeeze have hit the banking industry.
Adding to the uneasiness, the stock of Northern Rock P.L.C., Britain's fifth-largest mortgage lender, plunged, and customers withdrew billions of dollars after it issued a profit warning Friday and drew on emergency funds from the Bank of England. That gave U.S. investors an added impetus to pare their stock holdings, particularly in the financial sector.
Talk from former Fed Chairman Alan Greenspan of the possibility of a recession amid high inflationary pressures worsened Wall Street's jitters, as did job cuts at Merrill Lynch & Co. Inc.'s First Franklin Financial Corp.
It is possible the Fed will not go through with a rate cut if it believes that the economy is still growing moderately and that inflation remains a threat, but most investors expect the Fed to cut the benchmark federal funds rate at least a quarter of a percentage point. And because negative economic data have trickled in over the last couple of weeks, some anticipate a half-point rate cut.
The Dow Jones industrial average fell 39.10, or 0.29 percent, to 13,403.42. 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.
The prospect of a recession has been keeping the markets volatile.
Greenspan said in an interview with NBC before the markets opened yesterday that the risk of a recession is higher than it was at the beginning of the year, but not by much.
Meanwhile, U.S. Treasury Secretary Henry M. Paulson Jr. said in Paris that regulators should not rush to impose new rules on the market because of the recent tightening in credit.
"There's tremendous growth going on in many parts of our world economy, and that's driving a lot of business here in the U.S.," said Rob Lutts, chief investment officer of Cabot Money Management Inc., noting that the markets are focused on the U.S. housing market right now. "I'm not going to say let's not worry, but let's put it in perspective."
Crude-oil prices rose $1.47 to settle at a record $80.57 a barrel on the New York Mercantile Exchange. Crude closed above $80 for the first time last week.
Merrill Lynch fell $1.80, or 2.4 percent, to close at $72.85, after saying it was eliminating an undisclosed number of jobs.