Updated from 4:10 p.m. ESTStocks closed sharply lower Tuesday after the Federal Reserve raised short-term interest rates by another quarter-point and suggested that its long campaign of hikes, going back nearly two years, might not be over. The Dow Jones Industrial Average lost 95.57 points, or 0.85%, to 11,154.54, and the S&P 500 dropped 8.38 points, or 0.64%, to 1293.23. The Nasdaq was down 11.12 points, or 0.48%, to 2304.46. All 30 of the Dow's components finished in negative territory. Hewlett-Packard ( HPQ) was the biggest decliner, losing 3.1%. The 10-year Treasury note was plunging 19/32 in price to yield 4.78%, and the 30-year bond dropped a full point to yield 4.80%. The losses weren't as dramatic among shorter-maturing securities. The dollar was trading erratically against other major currencies. Lately, it was lower against the euro and the yen. Ben Bernanke was serving as chairman of the policymaking Federal Open Market Committee for the first time. The FOMC lifted rates for the 15th straight meeting since June 2004, and the federal funds target rate now stands at 4.75%, the highest level in five years. Rates were at 1% before the central bank started tightening. "The Fed's current objective is about bringing monetary policy back from historically low, post-recession, post-9/11 levels to a more neutral, nonstimulative range," said Richard Yamarone, director of economic research with Argus Research. "The economy is anything but slowing," he continued. "...expectations for first-quarter economic activity vary from about 4.5% to 6.0%. If the Federal Reserve sees a first-quarter GDP anywhere in that range, the likelihood of stopping the rate hikes is remote." The 25-basis-point increase in rates was widely expected. What Wall Street was awaiting was the statement, which included the comment that "the Committee judges that some further policy firming may be needed to keep the risks to the attainment of both sustainable economic growth and price stability roughly in balance." To view Gregg Greenberg's video take on today's market,
Fed officials also said they believe "economic growth has rebounded strongly in the current quarter but appears likely to moderate to a more sustainable pace." Additionally, the Fed said "the run-up in the prices of energy and other commodities appears to have had only a modest effect on core inflation, ongoing productivity gains have helped to hold the growth of unit labor costs in check, and inflation expectations remain contained." Once the statements about the potential for more rate increases became known, stocks headed southward. "I don't think anyone knows how much longer the rate-hike campaign continues," said Dave Briggs, head of equity trading with Federated Investors. "The market is a discounting mechanism, but we're vulnerable with oil higher today. We don't seem to have much momentum here." "What the Fed is signaling is that they're not done yet," said Paul Nolte, director of investments with Hinsdale Associates. "The focus is on inflation fears, higher oil prices and a tight resource situation. A May FOMC rate hike has become almost a 100% possibility now, pending more economic data between now and then." About 1.54 billion shares changed hands on the New York Stock Exchange, with decliners beating advancers by a 2-to-1 margin. Volume on the Nasdaq was 2.02 billion, with decliners outpacing advancers 3 to 2. Oil prices rose to near two-month highs as concerns about geopolitical restrictions on worldwide crude supplies governed sentiment. In Nymex floor trading, May crude closed up $1.91 at $66.07 a barrel, its highest level since Feb. 6. Elsewhere, the Conference Board's consumer confidence index for March came in at a reading of 107.2, its highest level since 2002 and far ahead of expectations. Prognosticators expected a reading of 102, compared with a revised 102.7 in February. Among companies, General Motors ( GM) said it will cut as many as 500 U.S. salaried workers in order to bring profitability back to its North American operations. The layoffs represent roughly 1.3% of GM's salaried workforce. Shares lost 18 cents, or 0.8%, to close at $22.75.
Homebuilder Lennar ( LEN) said first-quarter earnings rose 35% from a year ago to $258 million, or $1.58 a share, beating estimates. Sales were also up 35% from last year. Lennar reiterated its full-year profit goal of $9.25 a share. Lennar rose 63 cents, or 1%, to $60.95. Lennar's gain failed to boost the Philadelphia Housing Sector index, which lost 0.7%. The Philadelphia Oil Service Sector index rose 2%, while the Amex Airline index fell 2.7%. The Philadelphia Semiconductor Sector index ended down 2.1%. The bank sector index dropped 1%. Lexar ( LEXR), the flash-memory maker that recently agreed to be sold, guided first-quarter results lower Tuesday. Lexar expects to lose $22 million to $30 million in the period, wider than the consensus $17 million estimate. Lexar fell 61 cents, or 6.6%, to finish at $8.71. Tiffany ( TIF) said fourth-quarter earnings fell because of a gain in the year-ago quarter. Excluding that, the jewelry retailer beat estimates by 3 cents and guided its full year in line. Tiffany rose 40 cents, or 1%, to $38.91. In early research, CIBC raised U.S. Steel ( X) to hold from sell and raised its price target by $9 to $64, while Stifel Nicolaus raised its target on Best Buy ( BBY) to $59 from $56, citing optimism about current-quarter earnings. Still, U.S. Steel finished down 35 cents, or 0.6%, to $61.34. Best Buy tacked on 41 cents, or 0.8%, to $55.16. Shares of Eli Lilly ( LLY) were lower by 3.9% after both Merrill Lynch and Friedman Billings cut their ratings on the stock. The stock lost $2.26 to close at $56.41. Shares of Level 3 ( LVLT) rose after the telecom carrier raised its target for first-quarter earnings before depreciation and amortization. Level 3 expects to show $140 million to $150 million on that line in the quarter, up from its old range of $105 million to $125 million. Level 3 surged 71 cents, or 15.9%, to end the session at $5.18. Overseas markets were mixed, with London's FTSE 100 losing 0.6% to 5936 and Germany's Xetra DAX falling 0.4% to 5891. In Asia, Japan's Nikkei rose 0.2% overnight to 16,690, while Hong Kong's Hang Seng added 0.2% to 15,857.