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Stocks fall as fed discloses interest rate fears Original Source Link: (May no longer be active)
http://quote.bloomberg.com/apps/news?pid=10000006&sid=a51_Ad095ZtI&refer=homehttp://quote.bloomberg.com/apps/news?pid=10000006&sid=a51_Ad095ZtI&refer=home
U.S. Stocks Fall After Fed Minutes Renew Interest-Rate Concern
Jan. 4 (Bloomberg) -- U.S. stocks fell as the Federal Reserve disclosed that policy makers saw interest rates as too low to curtail inflation and expressed concern about ``excessive risk-taking'' in markets.
``The Fed pretty much took away the punch bowl with this one,'' said Jack Ablin, who oversees $40 billion as chief investment officer at Harris Private Bank in Chicago. ``There's no place to hide in this market. The Fed is forcing the hand of money managers to rethink'' their positions, he said.
Technology shares such as Sun Microsystems Inc. and homebuilders including Lennar Corp. paced the decline. The central bank's views, taken from the minutes of its Dec. 14 policy meeting, pointed to slower economic growth and higher borrowing costs.
The Standard & Poor's 500 Index fell 14.03, or 1.2 percent, to 1188.05 as a surge in oil prices contributed to the drop. The Dow Jones Industrial Average retreated 98.65, or 0.9 percent, to 10,630.78.
The Nasdaq Composite Index, which gets two-fifths of its value from computer-related shares, slid 44.29, or 2.1 percent, to 2107.86. The index had its biggest two-day loss since Aug. 12.
Six stocks fell for every one that advanced on the New York Stock Exchange. Some 1.7 billion shares changed hands on the Big Board, 18 percent more than the three-month daily average.
An S&P 500 measure of technology stocks was the biggest drag on the benchmark among 10 industry groups, losing 2.3 percent. Sun Microsystems, the maker of servers that run corporate networks and Web sites, slumped 48 cents to $4.63. Its 9.4 percent drop was the steepest in the S&P 500.
Risk
Benchmark indexes reached their lows of the day after the Fed's minutes showed policy makers were concerned interest rates were too low ``to keep inflation stable'' and said rising prices may become a risk to growth.
The release was the first since the Fed cut in half the delay on issuing the minutes to three weeks. Previously, the minutes were published after the next meeting had taken place.
Some members pointed to increasing numbers of mergers and initial public offerings as well as ``speculative'' demand in some housing markets as signs of risk.
``There's definitely been a lot of speculation, not just in IPOs, but look at Google Inc. and a lot of other stocks,'' said Barry Ritholtz, market strategist for brokerage Maxim Group LLC in New York. ``You had a lot of bullishness coming at the end of the year.''
Google, which has doubled since its initial offering last August, fell $8.21 to $194.50 today. Sun Microsystems, whose shares surged 33 percent last quarter, fell after Merrill Lynch & Co. analyst Steven Milunovich cut his fiscal second-quarter revenue estimate, in part because ``software sales still sound slow.'' He also reduced his profit estimate to 2 cents a share.
Homebuilders
The Bloomberg Homebuilders Index, which has more than doubled over the last two years as mortgage rates declined, lost 4 percent after the Fed released its minutes. Lennar, the No. 2 U.S. homebuilder by market value, retreated $2.57 to $53.43. Hovnanian Enterprises Inc. fell $2.58 to $45.87.
A surge in oil prices today added to concern about inflation. Crude oil for February delivery climbed 4.3 percent to $43.91 a barrel in New York. The Fed raised its benchmark overnight lending rate a quarter-point to 2.25 percent at its Dec. 14 meeting for its fifth increase since June.
``The reality of slower earnings growth, higher inflation and higher interest rates this year is starting to sink in,'' said Edward Keon, chief investment strategist at Prudential Equity Group Inc. in New York. ``It's consistent with our generally cautious outlook for this year overall.''
He expects the S&P 500 to end 2005 at 1250.
2004 Highs
Benchmark indexes last week climbed to three-year highs and closed out their best quarter of 2004. Enthusiasm surrounding initial offerings and merger announcements from companies such as Sprint Corp. helped spur the rally.
Last year was the busiest for IPOs since 2000, with $132 billion of stock sold, more than double the $52 billion in 2003, according to data compiled by Bloomberg. It was also the best year for mergers and acquisitions advisers since 2000. Companies announced $1.9 trillion of deals, up from $1.22 trillion in 2003, according to Bloomberg.
Producers of raw materials dropped along with prices of copper and gold. Phelps Dodge Corp., the world's No. 2 copper miner, retreated $3.75 to $92.05. Newmont Mining Corp., the biggest gold miner, lost 79 cents to $41.57.
Eastman Chemical Co. slid $5.11 to $52.19. The largest maker of plastic for beverage bottles said fourth-quarter profit was below the low end of a prior forecast due to a $100 million jump in the cost of energy and raw materials. Eastman paced a 2.3 percent drop in an S&P 500 index of materials stocks.
Amazon.com
Amazon.com Inc., the No. 1 Internet retailer, fell $2.38 to $42.14. The company may see limited margin expansion and lower North American sales growth than its competitors, Smith Barney analyst Lanny Baker wrote in a report. He cut the shares, which have surged 25 percent since Oct. 26, to ``sell'' from ``hold.''
Lockheed Martin Corp., the largest U.S. defense company, dropped 92 cents to $53.29. Northrop Grumman Corp., the biggest warship builder, lost $1.15 to $52.50. Defense projects headed by the two companies face the deepest proposed cuts from a U.S. Department of Defense plan to trim $30 billion in weapon costs over the next six years, according to a budget document.
Rayovac Corp. surged $5.09 to $34.65. The third-largest U.S. maker of batteries agreed to buy lawn-and-garden-products maker United Industries for $476 million to become less reliant on the declining battery business.
The Russell 2000 Index, which tracks companies with a median market value of about $550 million, fell 11.90 to 628.54.
The Dow Jones Wilshire 5000 Total Market Index, the broadest measure of U.S. shares, lost 153.55, or 1.3 percent, to 11,679.31. Based on changes in the Wilshire, the value of stocks decreased by $184.3 billion.
Last Updated: January 4, 2005 17:16 EST
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