Updated from 4:20 p.m. EDTNew York's major indices went out mixed Tuesday as hawkish words from the Federal Reserve chief left stocks unable to sustain any sincere forays into positive territory, notwithstanding a leaping dollar and an encouraging development in the blistering oil market. Stocks had an erratic session, with the Dow Jones Industrial Average roaming in and out of the green throughout the day before closing up 9.44 points, or 0.1%, to 12,289.76. The index enjoyed particularly strong support from Coca-Cola ( KO), which was upped to buy from hold at Deutsche Bank, and financial components Citigroup ( C), JPMorgan Chase ( JPM) and AIG ( AIG). Broader indices, meanwhile, returned to negative territory following a bit of short-lived strength earlier, though both closed off their lows for the day. The S&P 500 surrendered 3.32 points, or 0.2%, to 1358.44, and the Nasdaq Composite lost 10.52 points, or 0.4%, to 2448.94. "The market is undergoing a state of real nervousness here," said Peter Cardillo, chief market economist with Avalon Partners. "The fact that
At the same time, Dow Jones quoted Dallas Fed President Richard Fisher as saying he is forecasting "anemic" growth, but not a recession, and Reuters said the official would be willing to accept a slower economy if that meant inflation would be contained. Also, the Boston Fed's Eric Rosengren reportedly said inflation was running at an "undesirable" level. Those comments would appear, once again, to suggest that the Fed won't cut interest rates again following its 325-point easing campaign over the past few months. In fact, fed funds futures today were pricing in roughly 56% odds that the Fed will raise rates at its Aug. 5 gathering. The chances of a quarter-point hike by the September meeting are now set at 100%, and the prospect of a 50-basis-point climb by October is likewise fully priced in. Meanwhile, crude oil earlier soared to a new high shy of the $138 mark, but reversed to slide $3.04 at $131.31 a barrel after news broke that Saudi Arabia's oil output was boosted by nearly 500,000 barrels a day this quarter at 9.54 million, according to CNBC. The network cited sources in the Saudi Oil Ministry. Still, gas prices at the pump hit another record high, jumping 2 cents from yesterday to $4.043 a gallon, according to AAA. That's nearly a dollar higher than last year. Rising oil prices were among the main factors driving up April's U.S. trade deficit, or the amount by which imports outweighed exports, to $60.9 billion. Analysts were looking for minus $60 billion, and that compares with March's upwardly revised figure of negative $56.5 billion.
"The trade deficit heightens the risk of recession and surging unemployment," wrote Peter Morici, a business professor with the University of Maryland and former chief economist at the U.S. International Trade Commission. "Ben Bernanke's most recent comments about oil-driven inflation only serve to distract attention from these issues and aggravate risks." "Bernanke in recent comments has emphasized that western central banks stand ready to resist oil-induced recession, when in fact oil price increases are far beyond the control of the Federal Reserve and other central banks to affect," Morici continued. He added that the Fed chief's words "cause markets to believe the Fed will raise interest rates as we travel into a recession and this drives equity prices down, compounding the panic created by rising oil prices." Following Bernanke's observations, the U.S. dollar jumped by more than a percent against the euro, the yen, and the pound, and barreled 1.6% higher against the Swiss franc. Gold futures slid $23.50 to $871.20 an ounce. Foreign markets were uniformly lower, and one of the hardest hit was China's CSI 300, which plummeted 8.1%. The Nikkei 225 in Tokyo dropped 1.1% overnight, and the Hang Seng Index in Hong Kong sank 4.2%. Among European exchanges, London's FTSE 100, Germany's Xetra Dax and the Paris Cac were all down 0.7% or more. On the U.S. corporate front, chipmaker Texas Instruments ( TXN) narrowed its second-quarter outlook, partially citing weak demand for handheld devices. Shares fell 2.9%. Elsewhere, both Citigroup and Lehman Brothers bumped up their Apple ( AAPL) price targets a day after the company released its 3G-enabled iPhone, after which the stock added 2.2%.
Separately, shares of Lehman Brothers ( LEH) tumbled 6.7% after Wachovia downgraded the stock to market perform from outperform. Kirk Kerkorian's Tracinda said its offer to buy up to 20 million shares of Ford ( F) generated a tremendous response, with more than 1 billion shares of the automaker being tendered. However, Tracinda will keep to its plan to limit the purchase to 20 million, spending $170 million overall. Ford shares slumped 3.8%. Yields on government bonds forged higher as investors pulled out of Treasury securities. The 10-year note was down 26/32 in price to yield 4.10%, and the 30-year bond shed 1-3/32 in price, yielding 4.70%.