Stocks Mixed Ahead of Fed

Updated from 4:05 p.m. EST

Stocks followed up a flat week with a flat day Monday, as traders stepped back and waited for the Federal Reserve's rate decision tomorrow.

The Dow Jones Industrial Average ended the session down 29.86 points, or 0.26%, to 11,250.11. The S&P 500 lost 1.34 points, or 0.10%, to 1301.61. The Nasdaq Composite rose 2.76 points, or 0.12%, to 2315.58.

On the Dow, 21 of 30 components ended lower, with Altria ( MO) the leading percentage decliner and Alcoa ( AA) the leading percentage advancer.

"We had a very solid move up in stocks in the first quarter," says Hugh Johnson, chairman of Johnson Illington Advisors. "There's a good chance that what the markets will be left with is a great deal of uncertainty or even the belief that more rate increases are coming."

Breadth was negative. Decliners beat advancers more than 9 to 7 on the New York Stock Exchange as 1.37 billion shares changed hands. On the Nasdaq, losers narrowly topped winners as 1.86 billion shares traded.

The 10-year Treasury bond ended the day down 9/32 in price to yield 4.70%, while the dollar edged higher against the euro and fell against the yen.

"It's going to be quiet week, and it will hold buyers at bay," says David Briggs, head of equity trading at Federated Investors. "We'll also be looking at the PCE number due out on Friday for any whiff of salary inflation. That will be a big day for the market."

Monday's economic docket was bare. On Tuesday, in addition to the Fed announcement, traders will see the consumer confidence index for March. The government's final reading on fourth-quarter gross domestic product will be released Thursday.

Futures markets are currently pricing in 100% odds that Ben Bernanke's first meeting of the Federal Open Market Committee will end Tuesday afternoon with the official fed-funds target rising a quarter-point, to 4.75%. The Fed's 15th consecutive hike would follow a mixed serving of economic data last week, including a strong number on existing-home sales but a weaker one on new homes.

To view Gregg Greenberg's video take on today's market, click here .

Briggs agrees that the a 25-basis-point interest rate hike is a foregone conclusion, and that the meeting statement will be the real news, as market watchers inspect the language for clues as to how many more times the Fed will raise rates.

"If the statement comes out with concerns about inflation, stocks could take a little pressure," he says. "But I don't think it will be real dramatic."

Johnson says those expecting a large departure from the Alan Greenspan Fed will likely be disappointed, but he does expect to see a subtle shift in tone.

"Bernanke will put less emphasis on leading indicators and more emphasis on incoming current economic and inflation numbers," says Johnson.

He points out that Greenspan's wariness of potential inflation is well-documented, and that when the Fed raised rates in 1994 it was because of inflation expectations, rather than actual price increases. This is something he believes Bernanke is less likely to do.

As of Friday, odds that fed funds will rise to 5% after the Fed's May meeting were 79%, down from 94% the previous day. The market still sees a 92% chance that the Fed funds rate will stand at 5% at the June meeting. Odds of a 5.25% funds rate in June dropped to 0% from 6%.

Oil futures ended the day down, but off their morning lows, as the government of Nigeria started talks with major oil companies about restarting production that has been curtailed by rebel activity. In Nymex trading, May crude lost a dime to close the session at $64.16 a barrel.

Comex gold rose $6.90 to end the day at $567.40. Metals and mining stocks advanced as well, with Freeport-McMoRan Copper and Gold ( FCX), Newmont Mining ( NEM) and BHP Billiton ( BHP) all higher.

Citigroup raised its rating on miners Inco ( N), Alcan ( AL) and Phelps Dodge ( PD), saying copper and nickel prices should stay strong.

Among companies, Encysive Pharmaceuticals' ( ENCY) stock plummeted on the news that the Food and Drug Administration wants more data on Thelin, the company's treatment for pulmonary arterial hypertension. Encysive had expected the drug would be approved last Friday.

Walgreen ( WAG), the nation's largest drugstore chain by revenue, said earnings rose 7% in the second quarter thanks to strong holiday merchandise sales to 51 cents a share. Sales grew by 11% to $12.16 billion.

The numbers came in below Wall Street forecasts, but the company said that a mild flu season kept many people from having to fill prescriptions, and the stock advanced.

General Motors ( GM) shares rose, kicking off what will be a crucial week for the automaker, after reports came out that the company will begin to lay off white-collar workers Tuesday as part of a plan to reduce salaried workers by 7% this year. Moreover, the company may soon file its delayed annual report, and the board is expected to meet early this week to discuss the potential sale of its GMAC financing arm.

Alcatel's ( ALA) board reportedly will meet this Thursday to consider the company's recent merger talks with Lucent ( LU), the U.S.-based telecom-equipment supplier. The negotiations were reported on Friday.

Mirant ( MIR) reportedly is near a deal to raise $1.2 billion by recapitalizing its power operation in the Philippines. The company operates two big plants in the country and is its largest private power supplier.

Circuit City ( CC) was raised to hold from sell at Lehman Brothers, which argued that demand for big-screen televisions and game consoles should boost results through next year.

In other analyst actions, Intel ( INTC) shares got a lift after two firms upgraded the company and speculated that a pair of soon-to-be released processors could give it an edge over rival Advanced Micro Devices ( AMD).

First Albany analyst Auguste Richard upgraded his rating of Intel to neutral from underperform, and Citigroup analyst Glen Yeung noted that although Intel has lost revenue market share to AMD over the past two years, the company could stem its losses thanks to the release of the processors Conroe and Woodcrest.

Overseas markets were mixed, with London's FTSE 100 closing lower, down 1.1% to 5972 and Germany's Xetra DAX down 1% at 5912. In Asia, Japan's Nikkei rose 0.5% overnight to 16,650, while Hong Kong's Hang Seng added 0.6% to 15,816.

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