Stocks slide as investors look to Fed for read on economy; wholesale inventories fall

NEW YORK (AP) — Traders are turning cautious about the prospects for the economy. Stocks skidded Tuesday as the Federal Reserve began a two-day meeting that could provide new insight into how the economy is faring. The Dow Jones industrial average fell 100 points and bond prices jumped as investors looked for the safety of government debt.

It is widely expected that policymakers will hold interest rates steady at near zero, but investors are waiting to see what the central bank has to say in its assessment of the economy when the meeting concludes Wednesday.

“It’s pretty clear that a lot of people are pulling back any bets pending what is going to happen with the Fed,” said Max Bublitz, chief strategist at SCM Advisors in San Francisco.

Investors also grappled with mixed economic reports and downbeat comments from an influential analyst.

Stocks extended their losses after the Commerce Department said businesses cut inventories at the wholesale level for a record 10th consecutive month in June. The drop has contributed to the recession. In one bright spot, sales rose 0.4 percent for a second straight month, the first back-to-back increases in a year.

Financial stocks saw some of the steepest losses after analyst Richard Bove of Rochdale Securities wrote in a research note that bank earnings won’t improve in the third or even the fourth quarter and that many companies will post losses. He said investors should lock in profits after a surge in bank stocks since early March.

“It just takes the euphoria feelings off the table,” said Dave Rovelli, managing director of trading at brokerage Canaccord Adams, referring to Bove’s comments and recent optimism among investors.

With many traders on vacation, volume was light, which tends to skew price moves.

In midday trading, the Dow fell 100.28, or 1.1 percent, to 9,237.67. The Standard & Poor’s 500 index fell 13.07, or 1.3 percent, to 994.03, while the Nasdaq composite index fell 26.18, or 1.3 percent, to 1,966.06.

Four stocks fell for every one that rose on the New York Stock Exchange, where volume came to 513.5 million shares compared with 414.1 million traded Monday.

Analysts say the market’s retreat is a sign of health because the S&P 500 index had jumped 15 percent in just four weeks and 49 percent from a 12-year low in early March.

“We’ve come a long way fast,” Bublitz said.

Bond prices rose. The gains came even as the Treasury Department began the first of the week’s three auctions for a record $75 billion in debt. Prices generally fall on the day the government introduces supply to the market. The auction Tuesday is for $37 billion in three-year notes.

Investors will be tracking demand for the new debt. A drop in buyers could force the government to increase the interest it pays, which would drive up borrowing costs for consumers and slow an economic recovery.

The yield on the three-year note, which moves opposite its price, fell to 1.72 percent from 1.78 percent late Monday. The yield on the benchmark 10-year Treasury note fell to 3.71 percent from 3.78 percent.

Among banks, Citigroup Inc. fell 28 cents, or 7.1 percent, to $3.66. Wells Fargo & Co. slid $1.68, or 5.9 percent, to $26.96.

The KBW Bank Index, which tracks 24 of the nation’s largest banks, fell 5 percent.

A string of analyst downgrades weighed on stocks and made traders cautious about the overall economy.

Bond insurer MBIA Inc. tumbled 87 cents, or 14.1 percent, to $5.30 after J.P. Morgan Securities cut its rating on the stock over concerns the company could face steep losses from bad debt.

Yum Brands Inc. fell after an analyst at UBS lowered his rating on the company because of concerns about sales. The parent of the Pizza Hut, Taco Bell and KFC fast-food chains fell $1.58, or 4.3 percent, to $34.95.

Sprint Nextel Corp. fell 12 cents, or 3.4 percent, to $3.59, after Piper Jaffray & Co. analysts reduced their rating on the stock, saying some estimates are likely too high for the performance of the nation’s third-largest wireless carrier.

Investors largely looked past a report showing industrial production surged in the second quarter. The Labor Department said productivity — which measures the amount of output per hour of work — grew 6.4 percent during the second quarter. Economists polled by Thomson Reuters were expecting growth of 5.3 percent.

The growth was likely tied to businesses successfully cutting the number of hours worked faster than the drop in output, rather than the result of improving production. Labor costs fell 5.8 percent during the quarter.

In other trading, benchmark crude fell $1.46 to $69.14 a barrel on the New York Mercantile Exchange.

The dollar fell against most other major currencies, while gold prices fell.

The Russell 2000 index of smaller companies fell 10.41, or 1.8 percent, to 561.51.

Overseas, Japan’s Nikkei stock average rose 0.6 percent. In afternoon trading, Britain’s FTSE 100 fell 1.3 percent, Germany’s DAX index tumbled 2.4 percent, and France’s CAC-40 dropped 1.3 percent.

source: yahoo finance

Tags: dow, economy, fed meet, fed meeting, nasdaq, wall steet

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