- The Washington Times - Tuesday, June 6, 2006

BLOOMBERG NEWS

Stocks fell for a second day on growing speculation that the Federal Reserve will keep raising interest rates as the economy slows in the second half.

The Dow Jones Industrial Average dipped below 11,000 and closed at the lowest level since March after minutes of Fed board meetings and comments by central bank officials supported Fed Chairman Ben S. Bernanke’s remarks Monday that inflation is accelerating and “unwelcome.”

Eastman Chemical and other producers of raw materials dropped on concern demand for commodities will diminish in the months ahead. Home builders retreated on a Wachovia Securities downgrade.

“Growth is going to slow with inflation rising,” said James Harrington, chief investment officer for Brinker Capital. “That’s why people are hunkered down.”

The Dow lost 46.58, or 0.4 percent, to 11,002.14 and fell as low as 10,926.42 . The Standard & Poor’s 500 Index fell 1.44, or 0.1 percent, to 1263.85. The Nasdaq Composite Index dropped 6.84, or 0.3 percent, to 2162.78.

The Russell 2000 Index of smaller companies declined 2.96 to 710.96.

The S&P; 500 has slumped 4.7 percent since reaching a five-year high last month. Mr. Bernanke’s speech to banking executives in Washington Monday roiled global equities yesterday, with Asian stocks reaching the lowest in almost three months and European shares falling to levels not seen in almost two weeks.

Comments from Fed officials yesterday kept investors focused on interest rate concerns. Fed Governor Susan Bies, answering questions after a speech in Coronado, Calif., said the central bank is trying to “balance” a need to stem inflation from “high” levels with its own forecast for slower growth. Ms. Bies said she doesn’t “exactly know when” the Fed will stop raising rates.

Federal Reserve Bank of Kansas City President Thomas Hoenig, speaking in Denver, agreed that inflation is higher than the central bank prefers. Federal Reserve Bank of St. Louis President William Poole said that slower growth alone may not be enough to keep inflation in check.

Minutes from Fed board meetings showed some Fed bank directors saw stronger economic growth and higher inflation than they expected.

Investment firm Goldman Sachs, which had expected no change in interest rates at the Fed’s next meeting, said in a research note yesterday that it now expects the central bank to boost rates again, to 5.25 percent.

An S&P; index of 16 home-building stocks declined 3.9 percent to its lowest level since October 2004 and biggest two-day drop since December 2003. D.R. Horton, the top U.S. home builder, fell $1.40 to $23.41. KB Home slumped $3.28, or 6.7 percent, to $45.82 for the worst performance in the S&P; 500. Lennar fell $1.50 to $45. Pulte Homes lost $1.64 to $28.11.

Google and Human Genome Science were among the bright spots in the market.

Google rose $15.55, or 4.2 percent, to $389.99, for the top gain in the S&P; 500. The company announced a new, free spreadsheet product that will compete with Microsoft’s Excel. The tool can be used to read and save Excel files.

Human Genome rose 41 cents to $10.60. Novartis, Europe’s third-largest drugmaker, agreed to pay the biotechnology company up to $507 million to jointly sell the hepatitis-C medication Albuferon. The two companies will share the costs and profits of selling it in the U.S.

, the companies said. Human Genome shares were upgraded to “buy” from “neutral” at Merrill Lynch.

A gauge of raw-materials shares lost 0.8 percent for the worst performance among 10 industry groups in the S&P; 500. Eastman Chemical, the world’s biggest producer of plastics for beverage bottles, slumped $1.82 to $54.22. The company was downgraded to “neutral” from “buy” at Banc of America Securities. Analyst Kevin McCarthy wrote in a note to clients that shares have attained his estimate of $56, and oversupply in the industry will limit further gains.

U.S. Steel Corp., the top U.S. steelmaker, fell $1.11 to $63.91. Alcoa Inc., the world’s largest aluminum producer, dropped 69 cents to $30.69.

General Motors Corp. slipped 80 cents, or 3.1 percent, to $25.25 for the Dow average’s steepest drop. Chief Executive Officer Rick Wagoner said the world’s largest automaker faces a “challenging” sales environment, and its plan to trim costs by $1 billion this year may not be possible. Mr. Wagoner spoke at the company’s annual meeting in Wilmington, Del.

More than 13 stocks fell for every six that rose on the New York Stock Exchange. Some 1.9 billion shares changed hands on the Big Board, 13 percent more than the three-month average.

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