Earnings Trip Up Stocks

Most FOMC members believed inflation would moderate later this year, even with another significant rate cut, but allowed that "inflation pressures had apparently risen even as the outlook for growth had weakened" and said the weakening U.S. dollar could compound matters further. Those inflationary concerns apparently influenced the Fed's decision for a three-quarter-point easing, even though the market had previously priced in a full-point cut.

The two dissenters, Richard Fisher of Dallas and Charles Plosser of Philadelphia, argued that previous aggressive rate-easing and liquidity measures were sufficient to mitigate risks of economic contraction. Both were worried that inflation expectations could "potentially become unhinged should the Committee continue to lower the funds rate in the current environment."

"What a lot of people forget," said Pado, "is that price stability is supposed to be the Fed's primary objective, not letting inflation get out of control. Secondary is to keep the economy growing."

In that vein, Pado echoed the Fed's inflationary concerns: "Economies grow best if they can count on futures prices," he said, citing Alcoa as a "perfect example" of what happens to individual businesses when future prices are in flux. "With all this global expansion, they're not doing well because they're having a problem with their input costs," he pointed out.

The Fed will next meet April 29 and 30.

Elsewhere on the economic docket, the National Association of Realtors said its February pending-home sales index fell 1.9% to 84.6 -- a record low for the index -- from a revised January reading of 86.2. That's about double the expected sequential decline, and represents a year-over-year drop of 21.4%. Moreover, the NAR doesn't expect existing-home sales to change much over the next few months, but it does project the numbers will improve "notably" in the second half of the year.

Meanwhile the International Monetary Fund, in its Global Financial Stability Report, estimated that the U.S. credit contraction could ultimately induce nearly $1 trillion in losses and that, even as the market stabilizes, a weakening economy could hamper banks' ability to lend.

As for analyst research, Goldman Sachs maintained its sell rating on Fannie Mae (FNM Quote) and Freddie Mac (FRE Quote), forecasting accelerating losses at government-sponsored mortgage buyers this year. Simultaneously, however, Lehman Brothers raised the pair to overweight from equal weight. Fannie and Freddie spent the morning in positive territory, but ended down 2.9% and 4.3%, respectively.

Wachovia predicted a first-quarter loss at Merrill Lynch (MER Quote) and said it's in a comparatively poor position to raise capital, even as CEO John Thain reiterated last week's assertion that the firm probably won't need any more cash, according to reports. Merrill shares closed off 1.6% at $46.80.

Among commodities, crude oil lost 59 cents to $108.50 a barrel. Gold futures slipped $8.80 to $918 an ounce. At the same time, the U.S. dollar weakened firmed by about 0.1% against both the euro and the yen to $1.5708 and 102.58, respectively.

Treasury prices were slipping. The 10-year note dipped 7/32 in price to yield 3.57%, and the 30-year bond lost 21/32 in price, yielding 4.39%.

Markets overseas were mostly sinking. In Asia, Tokyo's Nikkei 225 lost 1.5% to 13,250, and the Hang Seng Index in Hong Kong gave up 1.1%. Among European bourses, the FTSE 100 in London shed 0.4%. Germany's Xetra Dax and the Paris Cac gave up 0.7% apiece.