The Dow and Nasdaq slid for the fourth straight day amid lingering concerns about interest rates, inflation, and economic growth
Stocks continued to retreat Wednesday, finishing lower as investors fretted over inflation, economic growth, and interest rates. Early gains failed to generate follow-through buying, but the market seems to be in the process of finding a near-term bottom, says Standard & Poor's Equity Research.
The Dow Jones industrial average fell 71.24 points, or 0.65%, to 10,930.9 -- its first close below 11,000 since Mar. 9. The broader Standard & Poor's 500 index dropped 7.7 points, or 0.61%, to 1,256.15. The tech-heavy Nasdaq composite shed 10.99 points, or 0.51%, to 2,151.8, a seven-month closing low.
The Federal Reserve's interest-rate intentions continued to loom over the markets Wednesday. Atlanta Fed President Jack Guynn added to the recent chorus of hawkish remarks on inflation, saying the Fed is watching the issue "very, very carefully."
The Fed is highly likely to hike interest rates for the 17th consecutive time when it meets again June 28 and 29, analysts say, but some argue inflation fears are overblown. "The only explanation we can come up with if the Fed decides to go again is that 'a stitch in time will save nine,'" writes David Rosenberg, North American economist at Merrill Lynch, in a research report. The Fed may be betting "that another rate hike is worth the cost in terms of lost near-term economic growth in order to cement Mr. Bernanke's inflating-fighting credentials early in his mandate, and thereby buy him the chance to more easily influence the markets down the road."
Bond-market action suggests stock investors should be more concerned about slowing growth than rising inflation, others say. "We now believe the bond market is more likely indicating it has faith the Fed will go far enough -- or possibly too far -- in its effort to rein in inflation," says Sam Stovall, chief investment strategist for S&P Equity Research Services. "As a result, the real worry is not about inflation, but rather the possibility that the U.S. economy will slow more rapidly than currently estimated."
Also on the economic docket, former Fed Chairman Alan Greenspan testified about oil and the economy, but his comments held little of interest to markets, says Action Economics. Separately, consumer credit growth jumped 5.9% to $10.6 billion in April, its fastest pace since June, 2005.
The economic calendar looks relatively light again for Thursday. Reports on wholesale sales and inventories for April as well as initial jobless claims for the week ended June 3 will be on tap.
In corporate news Wednesday, analyst downgrades weighed on a pair of chemical companies, as Deutsche Bank cut both Dow member DuPont (DD ) and peer Dow Chemical (DOW ) from buy to hold.
Meanwhile, automaker General Motors (GM) was lower after the company's newly appointed president of Asia-Pacific operations reportedly said the company remains reluctant to over-invest in Asia and needs to rein in its bureaucracy.
Fellow Dow member IBM (IBM) was modestly lower in after a report that the computer maker's plan to triple its investment in India could pose challenges. Rival Dell (DELL ) was lower after announcing the first major update to its server computers in nearly two years.
Investors were also digesting M&A news. Pharmaceutical company Pfizer (PFE ) has reportedly received bids worth more than $14 billion for its consumer products unit. Rivals like GlaxoSmithKline (GSK ) and Johnson & Johnson (JNJ ) were indicated to be among the suitors.
Elsewhere, Northrup Grumman (NOC ) was lower on news that the U.S. Air Force pared back a plan to buy the defense company's Global Hawk unmanned aircrafts.
Shares in Cooper Cos. (COO ) fell after the contact lens maker dropped its fiscal-year earnings forecast to a range of $2.85 to $3.20 a share, from $3.40 to $3.60 previously.
In the energy markets Wednesday, July West Texas Intermediate crude oil futures closed down $1.68 at $70.82 a barrel, after weekly inventory data showed an unexpected increase in crude supplies.
European markets finished higher. In London, the Financial Times-Stock Exchange 100 index rose 36.5 points, or 0.64%, to 5,706.3. Germany's DAX index climbed 41.12 points, or 0.75%, to 5,543.93. In Paris, the CAC 40 index added 26.85 points, or 0.56%, to 4,824.77.
Asian markets finished lower. Japan's Nikkei 225 index tumbled 288.85 points, or 1.88%, to 15,096.01. In Hong Kong, the Hang Seng index dropped 156.56 points, or 0.98%, to 15,816.55. Korea's Kospi index skidded 34.78 points, or 2.67%, to 1,266.84.
Prices for 10-year Treasury notes fell to 100-24/32 with a yield of 5.02%, while 30-year bonds dropped to 90-30/32 for a yield of 5.09%. Investors who bought bonds Tuesday on a flight to safety were liquidating their positions, says S&P Equity Research.