U.S. stocks finished lower Wednesday as as rising interest rates in the Treasury market and surging crude oil prices threatened investors' expectations for an economic recovery.
The Federal Reserve's Beige Book data did show some improvement in the economy from mid-April through May, but it noted that conditions remain weak.
On Wednesday, the 30-stock Dow Jones industrial average finished lower by 24.04 points, or 0.27%, at 8,739.02, with weakness in Caterpillar (CAT), McDonald's (MCD), and Wal-Mart (WMT) shares weighing on the blue-chip benchmark.
The broad Standard & Poor's 500 index fell 3.28 points, or 0.35%, to 939.15.
The tech-heavy Nasdaq composite index shed 7.05 points, or 0.38%, to 1,853.08.
Treasuries fell in price, with the yield on the 10-year note spiking to 3.95% after a disappointing 10-year note auction.
The dollar index was up at 80.56, recovering from earlier losses after Russia indicated it would diversify up to $10 billion in its dollar reserves into other assets, including IMF holdings.
Gold shed earlier gains to trade lower at $953.40 per ounce.
Crude oil vaulted above $71 per barrel in NYMEX trading on a greater than expected decline in U.S. crude inventories.
European stocks gained, with London up 0.73%, Paris up 0.56%, and Frankfurt higher by 1.07%. In Asia, Tokyo stocks rose 2.09%, Hong Kong advanced 4.03%, and Shanghai gained 1.02%.
Home improvement chain Home Depot (HD) also raised its 2009 guidance and sparked some demand in that sector as well a cyclical stocks.
The Fed's Beige Book report released Wednesday indicated that economic conditions remained weak or deteriorated further, but 5 of the 12 Districts said that the downtrend is showing signs of moderating. It was also noted that several Districts indicated that expectations were improving though a substantial pick up in activity is not expected through year end. The Beige Book also noted that manufacturing declined or remained at a low levels across most Districts, but here too the outlook was improving in several areas. Retail spending, and new car purchases remained weak. Travel and tourism also declined.
On an upbeat note, a number of Districts reported an uptick in home sales and that new home construction appeared to have stabilized. But, vacancy rates were rising in many regions, while developers were finding financing for new projects increasing difficult to obtain. Credit conditions remained stringent or tightened further. The labor market remained weak, with wages generally flat of falling. There was some talk employers were scaling back benefits.
The U.S. Treasury recorded a $189.7 billion budget deficit for May, versus a $165.9 billion deficit a year ago. That's a 14.3% year-over-year erosion. For the fiscal year to date, the government is running a $991.9 billion deficit, compared to a $319 billion shortfall for the same period last year, up 210.6%.
The budget deficit was only modestly worse than expected, says Action Economics, but the hefty amount of red ink isn't a surprise.
The April trade deficit widened to $29.2 billion, from $28.5 billion in March. The gap was in line with the market consensus of $29 billion. The petroleum deficit widened by $444 million, to $15.0 billion, accounting for most of the deterioration, as higher prices offset lower import volumes. Exports dropped $2.8 billion to $121.1 billion, with declines in capital goods and industrial materials dominating the drop.
Imports fell $2.2 billion, with declines in capital goods and industrial materials offsetting the higher energy prices.
The deficit with China widened to $16.8 billion in April from $15.6 billion in March, despite stronger growth in China. China now accounts for well over half of the total deficit.