The major indexes retreat amid worries about higher inflation and the economy. Goldman Sachs earnings impressed investors.
Stocks finished lower Tuesday, pressured by ongoing worries about the economy and inflation. Wall Street giant Goldman Sachs (GS) reported better than expected quarterly earnings despite feeling the effects of the continuing financial crisis.
Market players appeared to be disappointed by reports saying that the Federal Reserve won't do anything about interest rates in the near term, according to S&P MarketScope.
"In our view, the Fed won't ease further, despite the risk of persistent economic weakness," wrote Richard Berner at Morgan Stanley in a note. "But we strongly doubt that the Fed will tighten soon." He added that he thinks the economy will remain weak and the unemployment rate is expected to hit 6% later this year.
Bonds were higher, while the dollar index was lower. Gold futures were higher, while oil futures fell slightly.
On Tuesday, the Dow Jones industrial average was down 108.78 points, or 0.89%, to 12,160.30. The broader Standard & Poor's 500-stock index fell 9.21 points, or 0.68%, to 1,350.93. The tech-heavy Nasdaq composite index lost 17.05 points, or 0.69%, to 2,457.73.
Trading was slow amid some positioning for Friday's options expiry, reports S&P MarketScope. On the New York Stock Exchange, 18 stocks moved lower for every 13 that posted gains. On the Nasdaq, the ratio was 18 to 10 negative.
Bank stocks were among the weakest performers on Tuesday, after a Goldman Sachs analyst predicted that U.S. banks will have to raise $65 billion in new capital to cover losses.
Goldman Sachs posted earnings of $4.58 per share, vs. $4.93 a year ago, as investment banking revenue fell 2%. Also, the Financial Times reports that Goldman is close to restructuring a troubled $7 billion investment vehicle formerly run by hedge fund Cheyne Capital.
Inflation warnings came from the U.S. producer price index, which jumped 1.4% in May, while the core rate -- excluding food and energy -- rose 0.2%. The headline PPI is up 7.2% from a year ago, while the core rate is up 3%. Energy prices in the PPI increased 4.9%, with gas prices up 9.3% and food prices up 0.8%.
On the housing front, U.S. housing starts fell 3.3% to an annual pace of 975,000 in May, from 1.008 million in April. Starts are down 32.1% from a year ago.
The price of oil was lower Tuesday. On the NYMEX, crude oil for July delivery was down 63 cents, trading at $133.98 per barrel.
In other economic data Tuesday, U.S. industrial production fell 0.2% in May, the second straight monthly decline. Also, the U.S. current account deficit rose to $176.4 billion in the first quarter, from $167.2 billion in the last quarter of 2007.
The International Council of Shopping Centers said Tuesday that chain store sales rose 0.2% last week, after rising 1.7% the week before. ICSC's chief economist Michael Niemira said two consecutive weeks of increases are attributable to demand for hot-weather merchandise, Father's Day shopping and federal tax rebates. However, "Economic headwinds continue to be strong for the month of June, and are likely to check any substantive spending improvement," he added.
Among other stocks in the news Tuesday, Best Buy (BBY) posted earnings of 43 cents per share, vs. 39 cents a year ago, as same-store sales rose 3.7% and total sales increased 12%. The retailer reiterated its previous 2009 earnings guidance.
Ford Motor (F) announced it will begin exporting more automotive products and transmission parts to China after an agreement signed in Washington. The total value of the pact is estimated to be over $800 million.
La-Z-Boy (LZB) posted a 9 cents per share loss, vs. earnings of 16 cents a year ago, as sales fell 9.8%. The firm said it will take some time before the environment in the home furnishings industry improves.
Nymex Holdings (NMX) said the exchange's average daily volume in May was 1.902 million contracts, a 38% increase from a year ago. NYMEX's electronic volume on the CME Globex trading platform averaged 938,020 contracts per day, a 57% increase.
NYSE Euronext (NYX) announced that members of the American Stock Exchange had approved a merger agreement between NYSE and Amex.
Alcatel-Lucent (ALU) announced a $1 billion deal with China Mobile to provide mobile communication equipment and services.
Daimler AG (DAI) announced a program to buy back 10% of its shares, for a maximum amount of 6 billion euros.
Adobe Systems (ADBE) posted earnings of 50 cents per share, vs. 37 cents a year ago, as revenue rose 19%. It expects earnings next quarter of 45 to 47 cents per share.
Major European indexes finished higher Tuesday, though they ended well below the best levels of the session. In London, the FTSE 100 index added 1.16% to 5,861.90. In Paris, the CAC 40 index gained 0.61% to 4,686.33. Germany’s DAX index rose 0.98% to 6,796.16.
In Asia, Japan’s Nikkei 225 index edged down 0.04% to 14,348.37. In Hong Kong, the Hang Seng index rose 0.12% to 23,057.99.
Treasuries were higher in price Tuesday. The 10-year note was higher at 97-10/32 for a yield of 4.215%; the 30-year bond was higher at 93-22/32 for a yield of 4.779%.