Updated from 4:06 p.m. ESTBlue chips were whacked Thursday as concerns about inflation drove long-dated bond yields to their highest level in nearly two years. Tech stocks held the flatline. The Dow Jones Industrial Average fell 65 points, or 0.58%, to 11,150.70, and the S&P 500 lost 2.64 points, or 0.2%, at 1300.25. The Nasdaq Composite, at a five-year high after the prior session's rally, rose another 3.04 points, or 0.13%, to 2340.82. Leading the Dow lower were losses of 1.5% or more in Caterpillar ( CAT, Altria ( MO and 3M ( MMM. The 10-year Treasury was down 17/32 in price to yield 4.86%, a point not seen since mid-2004 when the Federal Reserve began its rate-hiking campaign. The Fed's string of 15 quarter-point increases has taken the fed funds target rate to 4.75% from 1% in the last 21 months. The 30-year bond sank 1-3/32 and was yielding 4.90%. Climbing yields create worries about the cost of borrowing, pressure bank profits and can have a cooling effect on economic activity. For example, mortgage rates, which closely track the movements of the 10-year Treasury, tend to rise. Also, corporations issuing debt will generally need to offer higher rates to entice investors. In the last month, the yield on the 10-year has risen 32 basis points from 4.54%, while the 30-year's yield has advanced 40 basis points from 4.50%. "The market has been hit particularly hard with some sharp steepening of the yield curve," said John Canavan, market analyst with Stone & McCarthy Research Associates. "The economic data has looked pretty strong, and the FOMC has said they see further tightening. Given that, yields have jumped across the curve." About 1.60 billion shares changed hands on the New York Stock Exchange, with decliners beating advancers by a 9-to-7 margin. Volume on the Nasdaq was 2.18 billion shares, and losers edged winners 8 to 7. Currency traders sent the dollar lower against the yen and the euro. Precious metals were stronger, with the front-month gold contract rising $13.20 to $591.80 an ounce on Nymex. The 2.3% gain put gold at its most expensive level since January 1981. Silver rose 54 cents to $11.66 an ounce, a move of 5%. Oil continues to provide a bearish backdrop, with crude starting the day at a two-month high. On Wednesday, the U.N. Security Council authorized a statement giving Iran 30 days to halt uranium enrichment, an action that will spur more anxiety about worldwide oil supplies. May crude finished up 70 cents to $67.15 a barrel, a two-month high. Meanwhile, unleaded gas rose 4 cents to $1.99 a gallon, its highest point since October, while natural gas rose 3 cents to $7.49 per million British thermal units. To view Gregg Greenberg's video take on today's market,
The last two sessions have been volatile for stocks. The broad averages fell Tuesday as traders sold on the Fed's rate pronouncements and bounced Wednesday amid broad strength in tech. Nokia ( NOK - Get Report) was one of the day's bright spots, as the company boosted its estimate for worldwide cell-phone sales. Nokia said it expects industrywide handset volume to rise 15% this year, up from its previous estimate of 10%. The company cited the integration of music and video into new mobile offerings and said it expects sales in developing markets to remain brisk. Shares of Nokia added $1.06, or 5.2%, to close at $21.28. Meanwhile, Best Buy ( BBY - Get Report) said fourth-quarter earnings rose 13% from a year ago to $644 million, or $1.29 a share, matching estimates. Best Buy sees earnings of $2.68 to $2.85 a share in fiscal 2007, above the Wall Street estimate. Best Buy finished up 26 cents, or 0.5%, to $54.78. On the economic front, the Commerce Department's final reading on fourth-quarter gross domestic product was revised up to 1.7% from 1.6%. However, core consumer inflation rose 2.4% in the fourth quarter, up from the previous estimate of 2.1%. Meanwhile, the chain deflator was revised up to 3.5% from the previous reading of 3.3%.
"We're completing the first quarter now, but we're still getting data from the fourth quarter," said Wachtel. "This is old news. I fail to see what relevance this will have for the market." Elsewhere, the Labor Department said initial jobless claims fell 10,000 to 302,000 last week. The less volatile four-week average of continuing claims dropped by 3,250 to hit 2.472 million, remaining at five-year lows. By sector, the Philadelphia Semiconductor Sector index lost 0.1% after opening the session up 1%. The Philadelphia Oil Service Sector index rose 0.9%, and the Amex Oil index tacked on 0.1%. The housing sector index fell 1.1%, and the Philadelphia/KBW Bank Sector index slipped 0.6%. Google ( GOOG - Get Report) finished lower after saying it plans to sell 5.3 million new shares in an effort to accommodate index funds that must buy the stock after its insertion in the S&P 500. The deal will raise $2.1 billion at current prices. Google fell $6.54, or 1.7%, to $388.44. General Motors ( GM - Get Report) reportedly is talking to overseas bidders about the sale of its 7.9% stake in Isuzu Motors. Meanwhile, the Wall Street Journal says the automaker is also closer to unloading a controlling stake in its finance arm GMAC for $9 billion. GM lost $1.09, or 4.9%, to $21.06. Three weeks after making a $4.2 billion offer for the London Stock Exchange, the Nasdaq ( NDAQ - Get Report) dropped the hostile offer, without elaborating. Nasdaq officials said they reserved the right to renew the bid over the next six months. The Nasdaq dropped $1.74, or 4.2%, to $40.11. Chipmaker ATI's ( ATYT second-quarter earnings fell 40% from a year ago to $34.1 million, or 13 cents a share. Adjusted earnings of 17 cents a share were 6 cents ahead of estimates, and the company guided its year in line. Shares rose $1.32, or 8.4%, to close at $17.05.
CarMax ( KMX posted fourth-quarter earnings of $40.4 million, or 38 cents a share, up from $29.7 million, or 28 cents a share, a year ago. The used car retailer said sales rose 16% to $1.62 billion. The Thomson First Call consensus was for earnings of 37 cents a share on sales of $1.54 billion. CarMax lost $2.24, or 6.3%, to $33.50. Patterson-UTI Energy ( PTEN - Get Report) posted fourth-quarter net income of $134.2 million, or 77 cents a share, up from $34.2 million, or 20 cents a share, a year ago. Results included a 3-cents-a-share charge related to the previously announced embezzlement by a former executive. Revenue jumped 84% to $531.2 million from a year ago. The Thomson First Call consensus was for EPS of 73 cents on revenue of $510.4 million. The stock added $2.19, or 7.2%, to $32.54. In ratings news, Prudential upgraded Maytag ( MYG to neutral from underweight a day after the Justice Department said it wouldn't block the company's acquisition by Whirlpool ( WHR - Get Report) on antitrust grounds. Maytag gave up 42 cents, or 1.9%, to $21.39. Overseas markets were higher, with London's FTSE 100 adding 0.9% to 6015 and Germany's Xetra DAX climbing 1.2% to 5984. In Asia, Japan's Nikkei added 0.6% overnight to 17,045, while Hong Kong's Hang Seng gained 0.9% to 15,881.