Technology shares managed to keep modest gains to finish higher on Tuesday, but blue chips faltered. Investors, meanwhile, tried to look beyond earnings' warnings to a likely interest rate cut on Wednesday from the Federal Reserve to help lift the sagging economy.
The Federal Open Market Committee, the Fed's policy-setting group, began its two-day meeting on Tuesday, and is expected to announce its decision regarding any interest-rate change after 2 p.m. EDT on Wednesday. The last rate cut in May, the fifth so far this year, brought the key Fed funds down 2.5 percentage points, to a rate of 4%, the lowest in seven years. The discount rate was also lowered by 50 basis points to 3.5%.
Early in the session Tuesday, much attention was focused on U.S. brokerage firm Merrill Lynch & Co. (MER ), which warned its second-quarter earnings per share would come in as much as 37% below analysts' expectations following weak stock and debt trading operations. Shares of Merrill lost more than 11%.
But later in the session, data on consumer confidence, new home sales and orders for durable goods or big-ticket items came in better than anticipated, cooling expectations the Fed will aggressively slash rates. The Street is divided as to whether the Fed will cut rates by 25 or 50 basis points.
Meanwhile, some on Wall Street say Wednesday's FOMC meeting will have little impact on the market. "It almost doesn't even matter what the Fed does in terms of the rate cut on Wednesday. The markets have already done most of the celebrating they can do in terms discounting the benefits of just seeing the Fed cut rates," S&P Market Analyst Paul Cherney told MarketScope. "The markets want signs that there is a bottom in place for the economy and right now those signs are not apparent," Cherney added.
The Dow Jones Industrial Average lost 32.14 points, or 0.31%, to 10,472.08. The technology-heavy Nasdaq Composite added 13.50 points, or 0.66%, to 2,064.37. Meanwhile, the broader S&P 500 index was relatively flat, down 1.88 points, or 0.15%, to 1,216.72.
U.S. Treasuries ended lower after the government released a fresh batch of unexpectedly upbeat economic data before the FOMC gathering. A leading gauge of U.S. consumer confidence rose for a second month in June. The Conference Board said its index of consumer attitudes climbed to 117.9 in June from an upwardly-revised 116.1 in May.
Also, the Commerce Department said new home sales rose 0.8% to a seasonally adjusted 928,000 annual pace. That was a rebound from upwardly revised April figures. Sales in April were revised to reflect a 4.5% decline to a 921,000 annual rate, a substantial change from the 9.5% decline and 894,000 annual rate originally reported.
And earlier in the session, orders for durable goods (big-ticket items including cars, planes and semiconductors)unexpectedly rose in May, the government said. Durable goods orders increased 2.9% to $188.55 billion following a 5.5% drop in April, the Commerce Department said. Excluding the volatile transportation sector, orders for durable goods climbed 2.7% last month.
Financial sector earnings warnings also impacted the European markets, which ended lower. In London, the Financial Times-Stock Exchange 100 index lost 106.20 points, or 1.88%, to 5,555.70. In Germany, the DAX Index fell 66.58 points, or 1.13%, to 5,835.74. In France, the CAC 40 fell 122.73 points, or 2.35%, to 5,090.73.
In Asia, the markets finished mixed. Japan's Nikkei index gained 82.35 points, or 0.64%, to 12,978.82. The market was supported by drugs, but hit by poor May retail sales data. In Hong Kong, the Hang Seng index plunged 212.05 points, or 1.61%, to 12,961.97.
By Heesun Wee in New York