Updated from 4:11 p.m. ESTSellers reasserted themselves Tuesday afternoon, wiping out a midsession rally, and the broad averages closed lower as rising interest rates clipped financial stocks. After rising as much as 20 points earlier, the Nasdaq Composite finished with a loss of 19.88 points, or 0.86%, to 2294.23. The Dow Jones Industrial Average gave up 39.06 points, or 0.35%, to 11,235.47, and the S&P 500 lost 7.85 points, or 0.6%, to 1297.23. "The market took the rising price of oil and a slight selloff in Treasuries as an excuse to take some profit and remain on the sidelines," said Robert Pavlik, chief investment officer with Oaktree Asset Management. "More and more talk has recently surfaced about the stock market being overbought." The Dow, which ended 100 points below its high for the day, failed to stay positive despite a 3.9% gain in General Motors ( GM). Shares rose after reports suggested GM is close to a deal with the United Auto Workers and Delphi ( DPHIQ). "The gains we had just vanished," said Paul Mendelsohn, chief investment strategist with Windham Financial. "There's no buyers above the highs we reached today. We saw a breakdown in financial stocks today. Banking stocks ran into some selling as we tried to push higher." About 1.57 billion shares changed hands on the New York Stock Exchange, with decliners beating advancers by an 8-to-3 margin. Volume on the Nasdaq was 2.38 billion shares, and twice as many stocks fell as rose. The 10-year Treasury was down 14/32 in price to yield 4.72% -- one basis point below the yield on the two-year note -- and the dollar rose against the yen and euro. Among sector indices, the Philadelphia Semiconductor index fell 0.2%. The Philadelphia Oil Service Sector index rose 0.1%, the Amex Airline index lost 1.2%, and the Philadelphia Housing Sector index finished down 1.8%. To view Gregg Greenberg's video take on today's market,
"Everyone is keeping a close eye on the tech sector, and the semiconductors in particular," Marc Pado, market strategist with Cantor Fitzgerald, said. "It is not that techs need to lead to make a rally successful, but they do need to go along for the ride." The Philadelphia/KBW Bank Index was off 0.6% and the Nasdaq Financial 100 dropped 1%. In a speech last night, Fed Chief Ben Bernanke said growth prospects for the U.S. economy remain favorable and that low long-term interest rates aren't necessarily a harbinger of a recession. Bond and currency traders took the remarks as confirmation that the Fed plans at least two more quarter-point rate hikes. The new Fed chief, who took over for Alan Greenspan Jan. 31, spent much of his speech talking about how best to determine a "neutral" rate policy. The ex-academic offered two possible explanations for the narrow yield curve: one, a global "savings glut" that would require less effort for the Fed to combat; and two, a shortage of long-term bonds that would require more vigilance. "I would not interpret the currently very flat yield curve as indicating a significant economic slowdown to come," Bernanke said. "In previous episodes when an inverted yield curve was followed by recession, the level of interest rates was quite high, consistent with considerable financial restraint. This time, both short- and long-term interest rates -- in nominal and real terms -- are relatively low by historical standards." Bernanke's confidence about the economy has been shared by investors of late. Going into trading Tuesday, over the past seven sessions the Dow had risen 198 points, or 1.8%, while the S&P 500 was up 33 points, or 2.6%. The Nasdaq had added 64 points, or 2.8%.
"Ben Bernanke's speech left the door open to more rate increases, perhaps more than the 'two and done' that the market has currently discounted," Pado said. His comments were still fresh when the government released another batch of inflation data. The Labor Department said Tuesday that the producer price index for February fell 1.4%, a much greater decline than expected and the biggest drop in nearly three years. The core PPI number, which excludes food and energy prices, rose 0.3%. On average, economists had been predicting a decline of 0.2% in the headline number and an increase of 0.1% in the core rate. "You have to be a little nervous about this number," said Ken Tower, chief market strategist with CyberTrader. "This is going to do nothing but make us focus more on next week's Fed meeting as investors keep searching about inflation clues." Oil turned higher after plunging almost 4% in the previous session. In Nymex floor trading, April crude ended up 15 cents to $60.57 a barrel. Oracle ( ORCL) ended down despite saying third-quarter earnings rose 42% to $765 million, or 14 cents a share, on an 18% rise in sales to $3.47 billion. Adjusted earnings of 19 cents a share beat estimates by a penny. New database license revenue, Oracle's core business, rose 4% to $827 million -- well below Wall Street's expectations of 9% growth to $853 million. The appreciation of the dollar hurt sales by roughly 4 percentage points. Without the currency effect, database sales would have grown by around 8%, Oracle said. Shares were lower by 10 cents, or 0.7%, to finish at $13.62. Jostling continues around Wendy's ( WEN) planned initial public offering of Tim Hortons. On Monday, the doughnut chain raised the expected price of the deal to $22 to $24 a share, from $18 to $20 a share previously. The Hortons transaction follows a very well-received IPO last month by McDonald's ( MCD) Chipotle ( CMG).
Google's ( GOOG) next major foray will be into financial news, according to published reports Tuesday. The search-engine giant is readying a stock-price and news portal that could threaten the hegemony of the sector's dominant players, including Yahoo! ( YHOO) and Microsoft ( MSFT), The Wall Street Journal says. Google fell $8.27, or 2.4%, to close at $339.92. Retailer Target ( TGT) said late Monday that it expects same-store sales for March to rise 1.5% to 2.5%, tightening its previous forecast of an increase of 1% to 3%. Target gave up 17 cents, or 0.3%, to $53.36. Also, among the latest earnings reports, semiconductor maker Rambus ( RMBS) lifted its fiscal first-quarter revenue forecast to a range of $45 million to $48 million from $41 million to $43 million. Shares rose $1.82, or 5.3%, to $36.22. Video game retailer GameStop ( GME) reported fourth-quarter net income of $85 million, or $1.10 a share, up from $34.5 million, or 64 cents a share, a year ago. Earnings included merger-related expenses of $2.3 million, or 2 cents a share. Sales jumped to $1.67 billion from $708.7 million a year earlier. The Thomson First Call consensus was for EPS of $1.08 on sales of $1.66 billion. The company also offered full-year guidance that topped analyst forecasts. GameStop was higher by $3.60, or 8.7%, to close at $45. After the bell, Nike ( NKE) posted third-quarter earnings of $325.8 million, or $1.24 a share, up from $273.4 million, or $1.01 a share, last year. The Thomson First Call consensus was for earnings of $1.10 a share. Nike lost 42 cents, or 0.5%, to $85.09 ahead of the report. Notable research reports saw Electronic Arts ( ERTS) upgraded to buy at Merrill Lynch, Nvidia ( NVDA) raised to overweight at Lehman, and Mortons ( MRT) started at outperform by Wachovia. Overseas markets were mixed, with London's FTSE 100 unchanged at 5991 and Germany's Xetra DAX up 0.2% to 5911. In Asia, Japan's Nikkei rose 1.7% overnight to 16,625, while Hong Kong's Hang Seng slipped 0.1% to 15,922.