Stocks Skid After Treasury Auction, Fed Talk

Stocks drop late Wednesday after a 10-year note auction suggested good demand and following a speech from Kansas City Fed President Thomas Hoenig, who said the Fed should hike its key rate soon. Gregg Greenberg has The Real Story.
Author:
Publish date:

NEW YORK (

TheStreet

) -- Stocks finished decidedly lower Wednesday after a 10-year Treasury note auction suggested good demand and following a speech from Kansas City Fed President Thomas Hoenig, who suggested the

Federal Reserve

should hike its key rate sometime soon.

After moving in listless fashion for much of the day, the

Dow Jones Industrial Average

swooned over 100 points late, only to close after tumbling 72 points, or 0.7%, to 10,898. The

S&P 500

dropped 7 points, or 0.6%, at 1182, while the

Nasdaq

slid 6 points, or 0.2%, at 2431.

Fed Chairman Ben Bernanke

discussed the financial crisis and the central bank's various responses at the Dallas Regional Chamber in the afternoon. The Fed chief called for an end to financial institutions that are too big to fail and highlighted the need for enhanced powers to wind down failing financial firms. Though the economy is healing, Bernanke, again, raised concerns about the labor and housing markets.

But separately in Santa Fe, N.M.,

Hoenig, who has dissented on the Federal Open Market Committee's policy statement language

to keep rates at near zero for an "extended period," said concerns over financial imbalances and inflation may require a proactive fed funds rate hike toward 1%.

"Under this policy course, the FOMC would initiate sometime soon the process of raising the federal funds rate target toward 1 percent. I would view a move to 1 percent as simply a continuation of our strategy to remove measures that were originally implemented in response to the intensification of the financial crisis that erupted in the fall of 2008," Hoenig said, according to released text of the speech. "In addition, a federal funds rate of 1 percent would still represent highly accommodative policy."

Ryan Detrick, senior technical strategist at Schaeffer's Investment Research, said the steep late session selloff was prompted by the confluence of Hoenig's comments, as well as money flowing from stocks to bonds following the better-than-expected 10-year note auction.

"I wouldn't be overly concerned," he added. "But that's how selloffs start, with one day."

Earlier in the day, Jay Suskind, senior vice president at Duncan Williams, said investors also may be staying on the sidelines in anticipation of the start of earnings next week.

"The market has priced in pretty robust earnings, and I don't think there's a lot of room for disappointment," he said. "If results look good and look to remain good going forward, then we might blow through 11,000 as people try to get in on the rally. But if earnings disappoint, or companies appear cautious, then you'll see more of a pullback."

Former Fed Chairman Alan Greenspan testified before the Financial Crisis Inquiry Commission for its three-day investigation into how subprime lending, securitization and government-sponsored enterprises like

Fannie Mae

(FNM)

and

Freddie Mac

(FRE)

contributed to the financial crisis.

The

Bank of Japan held a key interest rate at 0.1%.

Overseas, Hong Kong's Hang Seng rose 1.8%, and Japan's Nikkei increased 0.09%. The FTSE in London slid 0.3%, and the DAX in Frankfurt fell by 0.5%.

>>The Economy

>>Company News

>>Commodities and the Dollar

>>Treasuries

The Economy

The Mortgage Bankers Association reported a seasonally adjusted decline of 11% in its weekly Market Composite Index, which measures the volume of mortgage loan applications.

The Energy Information Administration reported a larger-than-expected gain of 2 million barrels to crude oil supplies in the week ended April 2. Analysts polled by Platts had been looking for a build of 1.5 million barrels. Gasoline supplies lost 2.5 million barrels, which was better than a projected 1 million-barrel drop. Distillates, however, gained 1.1 million barrels, dashing analysts' expectations for a decline of 1.5 million barrels.

Federal Reserve Chairman Ben Bernanke

Also fueling the afternoon slide, the Federal Reserve said late Wednesday that consumer credit dipped at a yearly clip of 5.6% in February. The $11.5 billion tumble, seasonally adjusted, came despite a 5.2% annual pace jump in January.

U.S. Treasury Secretary Timothy Geithner will travel to

Beijing on Thursday to meet with a Chinese vice premier to discuss China's currency policies.

>>Overview

>>Company News

>>Commodities and the Dollar

>>Treasuries

Company News

Technology was one of the session's best-performing sectors with

Cisco Systems

(CSCO) - Get Report

among the Dow's top performing stocks. Shares gained 0.5%.

Energy was the session's weakest sector with

Exxon Mobil

(XOM) - Get Report

and

Chevron

(CVX) - Get Report

among the Dow's biggest laggards, down by 0.8% and 0.7%.

Verizon Communications

(VZ) - Get Report

and

AT&T

(T) - Get Report

, however, put the most pressure on the index.

Volume on the Dow was light at 187 million shares, compared with an average of 200 million. The

New York Stock Exchange

had a listed volume of 5.1 billion.

Blockbuster

(BBI) - Get Report

was among the NYSE's top stocks after the company announced a deal with movie studios, giving it quicker and cheaper access to new movie releases. The stock rose almost 5 cents to finish trading at 30 cents a share.

Southwest Airlines

(LUV) - Get Report

reported a 22% jump in revenue per available seat mile in March. The stock, however, lost 15 cents, or 1.1%, to $13.30.

Monsanto

(MON)

slightly missed Wall Street's second-quarter profit expectations and expressed doubt at being able to meet its goal of doubling 2007 gross profit by 2012. The stock was shedding $1.45, or 2.1%, to $68.09.

Family Dollar Stores

(FDO)

reported a 33.4% increase in second-quarter earnings and guided for third-quarter and year-end results exceeding what analysts' had been expecting. Shares advanced by $1.15, or 3%, to $38.94.

In a letter to shareholders,

Goldman Sachs

(GS) - Get Report

defended its business model and practices leading up to the financial crisis.

Australia's

Macarthur Coal

rejected

Peabody Energy's

(BTU) - Get Report

sweetened takeover bid.

The

Retail HOLDRs ETF

(RTH) - Get Report

slid 0.2% after the

International Council of Shopping Centers said it expects March to show the strongest sales since 1994.

Shares of

Palm

(PALM)

rocketed up 20%, or 77 cents, to $4.62, on

takeover rumors.

Ahead of

retail sector sales results due tomorrow,

Bed Bath & Beyond

(BBBY) - Get Report

said earnings jumped 60% in the fourth-quarter and also offered an upbeat outlook, beating forecasts late Wednesday and sending shares up over 3% in extended trading.

Also after the bell,

The New York Times'

DealBook blog reported that United Airlines, through its parent company

UAL

(UAUA)

, and

US Airways

(LCC)

were in the midst of merger negotiations. UAL shares jumped over 6% in after hours trading, while US Airways was popping up over 14%.

>>Overview

>>The Economy

>>Commodities and the Dollar

>>Treasuries

Commodities and the Dollar

Following bearish crude inventory data from the EIA, the May crude oil contract traded 96 cents lower to settle at $85.88 a barrel. The June

gold contract, meanwhile, gained $17 to settle at $1,153 an ounce.

The

dollar was trading higher against a basket of currencies, with the dollar index ahead by 0.2%.

>>Overview

>>The Economy

>>Company News

>>Treasuries

Treasuries

Bonds picked up after the Treasury Department auctioned $21 billion in 10-year notes and results released in the afternoon showed good demand. The auction resulted in a high yield of 3.9% and an above average bid-to-cover ratio of 3.72. Indirect bidders, which also reflect foreign central banker demand, bought up 43.1%.

The benchmark 10-year Treasury strengthened further by 23/32, weakening the yield to 3.869%.

The two-year note rose 5/32, lowering the yield to 1.064%. The 30-year bond gained 1 10/32, dropping the yield to 4.748%.

On Thursday, will await results from the Treasury's $13 billion 30-year bond auction.

--Written by Melinda Peer and Sung Moss in New York

.

>>Overview

>>The Economy

>>Company News

>>Commodities and the Dollar

>>Overview

>>The Economy

>>Company News

>>Commodities and the Dollar