U.S. stocks closed mixed Wednesday. Tech and healthcare issues outpaced financials after Standard & Poor's Ratings Services downgraded several banks and the White House laid out reform plans for financial firms.
A disappointing fourth-quarter earnings report and cautious first-quarter outlook from FedEx Corp. (FDX) weighed on the broader market.
Financial shares were weaker amid a credit ratings downgrade of several banks by S&P
Ratings Services and as the Obama administration's reform plan for financial regulation looms.
On a brighter note, the May consumer price index rose only 0.1%, well below the 0.3% consensus estimate, suggesting that inflation remains tame. Investors have been worried this week that rising
prices might curb consumer demand and threaten an economic recovery.
Mixed economic data this week have fueled concerns that the global economy will be slow to recover from the recession, making investors more selective and cautious. A weaker dollar coupled with higher commodities prices and rising interest rates have added to investor concerns.
On Wednesday, the 30-stock Dow Jones industrial average finished lower by 7.49 points, or 0.09%, at 8,497.18. The broad Standard & Poor's 500-stock index was down 1.26 points, or 0.14%, to 910.71. The tech-heavy Nasdaq composite index added 11.88 points, or 0.66%, to 1,808.06, led by strength in Celgene (CELG) and Qualcomm (QCOM).
Activity in the broader market was also mixed. On the New York Stock Exchange, 17 stocks were lower in price for every 13 that advanced. But Nasdaq breadth was 14-13 positive.
Treasuries retreated, with the yield on the 10-year note rising to 3.68%. Gold and crude oil futures rebounded.
FedEx posted fourth-quarter earnings per share of $0.64, vs. $1.45 one year earlier (excluding items), on a 20% revenue decline. Wall Street was looking for $0.51-$0.52 EPS. The package-delivery giant, whose results are viewed as a barometer of the borader economy, sees first-quarter EPS of $0.30-$0.45, vs. $1.23 a year ago, saying the recent runup in fuel prices will have a significant negative impact on its quarterly results.
S&P Ratings Services on Wednesday lowered its ratings and revised its outlooks on 22 rated U.S.
banks, including Wells Fargo (WFC) and US Bancorp (USB). S&P said the actions reflected its belief that "operating
conditions for the industry will become less favorable than they were in the past, characterized by greater volatility in financial markets during credit cycles, and tighter
President Barack Obama laid out on Wednesday his vision for reshaping U.S. financial regulation, aiming to tighten oversight of the largest firms whose excessive risk-taking triggered a global recession, according to a Reuters report. The proposals include closing one bank regulator and creating new overseers for big-picture economic risk and consumer financial product safety, according to a document detailing the administration's proposal.
In economic news Wednesday, consumer prices edged up only 0.1% in May. The core CPI (excluding food and energy) was also up 0.1%. The increase was less than the 0.3% expected by the market, but the core rate was on expectations. Energy prices rose only 0.2%, a surprise given gasoline prices but reflecting the timing of the survey early in the month and declines in natural gas and fuel oil prices; the June jump will be much greater. Food prices fell 0.2%. A 0.8% rise in transportation prices (mostly caused by higher fuel prices) was offset by declines in housing, apparel and food prices. The CPI is down 1.3% from a year earlier, with the core rate up 1.8%.
The U.S. current account deficit, the broadest measure of external imbalance, narrowed to a seven-year low of $101.5 billion in the first quarter, from $154.9 billion in the fourth. The gap was wider than the $85 billion expected by the market. The balance on goods narrowed to $91.2 billion from $144.5 billion, but the services surplus also declined, to $32.8 billion from $34.3 billion, and the income surplus narrowed to $19.3 billion from $21.1 billion.
The U.S. MBA mortgage market index dove 15.8%, along with a 3.5% drop in the purchase index and a 23.3% plunge in the refinancing index. Average mortgage rates remained elevated and this continued to take a bite out of mortgage applications, especially for refinancings. The 30-year fixed fell 7 basis points to 5.50%, while the 15-year slipped 11 basis points to 4.99% and the 1-year ARM eased 21 basis points to 6.54%.
According to Action Economics, the mortgage and housing sector remains a central issue for the Federal Reserve amid risk that market yields prematurely race higher ahead of the recovery despite ongoing Fed purchases of agencies, agency MBS and Treasuries. In this regard, it shouldn't be a surprise that leaks about steering expectations via the FOMC statement emerge.
S&P Economics says that the Fed's attention remains on recession risk over inflation risk and believes continued financial turmoil and weak jobs reports will likely keep the Fed on hold through most of 2010.