Updated from 4:11 p.m. EDT
Stocks sustained several rhetorical barrages from
members Tuesday, with mixed results.
After rising more than 100 points earlier, the
Dow Jones Industrial Average
closed up 16.04 points, or 0.15%, to 10,483.07. The
fell 0.25 point, or 0.02% to 1197.26, while the
, which spent most of the session up about 1%, lost 8.60 points, or 0.41%, to 2067.16. The 10-year Treasury note was up 13/32 in price to yield 3.90%, while the dollar fell against the yen and euro.
Trading volume on the
New York Stock Exchange
was 1.83 billion shares, with advancers beating decliners by a 9-to-7 margin. Volume on the Nasdaq was 1.84 billion shares, with decliners outpacing advancers 8 to 7.
"The expectation was that we're at the end of a rate cycle, and the comments today from the Atlanta Fed govenor contradicted that," said Paul Nolte, director of investments with Hinsdale Associates. "This may be the beginning of a correction for the market. Volume picked up in both the Big Board and the Nasdaq on the fade in the afternoon. This may signal an end to the big May run."
After a buoyant morning, stocks hit trouble at midafternoon when Atlanta Fed President Jack Guynn hinted that the FOMC isn't done raising rates.
"Given the current outlook for the economy, my personal view is that we've not yet reached a neutral policy stance," Guynn said, according to
Guynn sowed more paranoia when he argued that certain Southeastern cities might be hosting housing bubbles. He refused to name them, but said: "I don't think this is sustainable. There is a very good chance that some lenders, some buyers and some builders will get burned from what I see in some of those submarkets."
"Fed commentary has focused on not allowing a bigger bubble to develop in the housing market," said Barry Hyman, equity market strategist with Ehrenkrantz King Nussbaum. "While not admitted to be a nationwide problem, there are areas where the price of homes has risen. Even though rates are low, many Fed govenors are concerned with the potential housing crisis. Unfortunately, it will play back into a Fed that will certainly not end after one more rate hike."
Guynn's remarks followed a voluble discussion of interest rate trends Monday night by Alan Greenspan. Speaking by satellite to a monetary conference in China, the
chief reiterated his mystification with the failure of long-term rates to rise in tandem with short ones like the fed funds lever. Greenspan reviewed a number of explanations for the phenomenon but found none completely satisfactory.
Regarding the conventional view that low long-term rates represent pessimism about economic growth, Greenspan called it a "credible notion" but noted that "periodic signs of buoyancy in some areas of the global economy have not arrested the fall."
He also expressed skepticism that foreign buying of Treasuries is the sole reason for the disparity. "Such purchases seem an implausible explanation of why yields on long-term non-U.S sovereign debt instruments are so low," he said. His stance was similar on the inflation-reducing impact of globalization and demographic trends.
The looming speech kept a lid on trading Monday, when the Dow rose 6 points to 10,467 and the Nasdaq rose 4 points to 2076. Greenspan's refusal to reach a firm conclusion on the rate conundrum was being viewed as a positive Tuesday, with traders focusing on Greenspan's acknowledgement that bond markets could be right about economic prospects.
"People feel Greenspan will stop raising rates sooner rather than later," said Al Goldman, chief market strategist with A.G. Edwards. "The mind-set is that the glass is half full, rather than half empty. The mood is improving after having been gloomy up until a month ago."
Still, not everyone read Greenspan's remarks as signaling an end to the current rate cycle. The Fed has raised rates at eight straight meetings in an effort to head off inflation. Some traders and economists believe the tightening is about to end as bond prices supposedly foretell an economic slowdown.
"He added that he is not fully satisfied with the economic weakness theory behind the falling rates, because they have remained insensitive to signs of economic strength on a global basis and there may therefore be other factors at play," noted Paul Mendelsohn, chief investment strategist with Windham Financial.
Oil fell, continuing yesterday's decline. The July contract finished down 73 cents to $53.76 a barrel, still about $4 below the all-time high of $58.28 touched on April 4.
Stronger areas Tuesday included materials, utilities, health care and homebuilding. Technology, energy, biotech and semiconductors were among weaker sectors.
In company news,
led the Nasdaq lower, dropping over 8%. The shares were victimized by profit-takers after the company reported a first-quarter loss of $9 million, or 7 cents a share, due to an accounting change. Excluding that, the company earned $81 million, or 65 cents a share, on revenue of $7.63 billion. Shares were down $13.41, or 8.7%, to $141.50.
took a page out of
book Monday night, scooping up comparison-shopping site Shopzilla for about $525 million in cash. The stock was down $1.06, or 2.1%, to close at $50.07.
Chairman and CEO Rick Wagoner said the company plans to cut 25,000 or more jobs and close assembly and components plants over the next few years. Wagoner made the announcement to shareholders at the company's annual meeting. GM added 31 cents, or 1%, to $30.73.
was the worst-performing component on the Dow after the company said European President Russ Smyth is leaving for personal reasons. Denis Hennequin, executive vice president at McDonald's Europe, will replace Smyth as the unit's president, effective July 1. Shares were down 84 cents, or 2.8%, to $29.57.
Technology stocks finished mixed ahead of
midquarter update, occuring after the bell Tuesday. TI was down 47 cents, or 1.7%, to $27.28.
, which will present its midquarter update on Thursday, was lower by 31 cents, or 1.1%, to $26.86. Other tech stocks that ended lower included
Procter & Gamble
affirmed its profit guidance for the quarter ending this month, saying it expects to earn 54 cents or 55 cents a share in the period and full-year earnings of $2.64 or $2.65 a share. Analysts surveyed by Thomson First Call were expecting earnings of 55 cents a share in the fourth quarter and $2.65 a share for the full year. Shares rose 14 cents, or 0.2%, to $55.45.
raised its first-quarter earnings and sales estimates, lifting its shares $2.09, or 12.4%, to finish at $18.98.
jumped 12.5% Tuesday after the company won supply contracts from two automakers to supply entertainment systems in automobiles. Both Chrysler, part of
, and Audi, part of Germany's
, have tapped Harman to supply car entertainment systems, with contracts generating revenue in excess of $200 million and $350 million, respectively. The stock added $10.14 to $91.14.
fell Tuesday after the restaurant operator reported in-line fourth-quarter profits but warned first-quarter results would be "down significantly." The company blamed eating trends among its core customers. Bob Evans was lower by $1.50, or 6.3%, to $22.33.
Also late Monday, marketing and merchandising company
said fiscal first-quarter net income rose to $1.7 million, or 4 cents a share, from $497,000, or 2 cents a share, a year earlier. Excluding items, the company reported earnings of $6.3 million, or 12 cents a share, beating analysts' expectations. Shares gained $1.12, or 11.2%, to $11.16.
reported third-quarter net income fell to $19.6 million, or 4 cents a share, dropping 72% from a year earlier. Year-ago results reflect a noncash income tax benefit of $76.4 million. Excluding special items, the company reported profit of $4.4 million. CMGI was off 32 cents, or 14.1%, to close at $1.95.
hit a new intraday high of $299.59 as it continued to approach the $300 price level. Shares finished the session up $2.18, or 0.7%, to $293.12, a new closing high.
In brokerage action, Piper Jaffray recommended buying data storage company
, raising its stock-price target to $27 from $25 and increasing its earnings estimate to $1.35 a share from $1.25 a share. The firm believes Seagate recently raised its forecasts thanks to strong demand for mobile drives. Seagate was higher by 37 cents, or 1.8%, to $21.17.
Deutsche Securities upgraded
to buy from hold and assigned the stock a target price of $18. Motorola's shares rose 21 cents, or 1.2%, to $18.13.
In other markets, overseas stocks were mixed. In Europe, London's FTSE 100 was up 0.8% to 5020, while Germany's Xetra DAX rose 1.5% to 4566. In Asia, Japan's Nikkei fell 0.5% overnight to 11,217, while Hong Kong's Hang Seng lost 0.2% to 13,837.
To view Aaron Task's video take on today's market, click here