Stocks Finish with Small Losses

Fears that a pickup in inflation will prompt the Fed to hike rates soon weighed on the markets

Stocks finished slightly lower on Wednesday as an attempt to move higher faded in late trading. Weakness stemmed first from disappointing guidance from semiconductor maker Intel (INTC ), and then from a higher-than-expected read of the consumer price index that sparked more Fed rate-hike fears.

The Dow Jones industrial average finished down 3.3 points, or 0.03%, to 10,377.95. The broader Standard & Poor's 500-stock index ended down 1.27 points, or 0.11%, to 1,128.17. The tech-heavy Nasdaq composite index finished off by 5.23 points, or 0.26%, at 2,024.85.

Health care facility stocks were lower, as the group suffered from lower-than-expected first quarter EPS guidance from HCA (HCA ).

Earnings from some 70 companies on the S&P 500 this week are expected to be robust, but the market has been spooked in the past few sessions by fears of interest rate hikes.

Wednesday's economic news did nothing to help the Street's rate fears. The consumer price index, a measure of inflation, arrived higher than expected, rising 0.5% in March, with prices up 1.7% year-over-year. Analysts expected the CPI to rise 0.3%.

The core CPI rate, which excluded volatile food and energy prices, gained 0.4%, vs. 0.2% in February (the largest increase since November 2001), and translates into a 1.6% year-over-year rate, also higher than analysts expected.

The higher CPI fueled Fed rate-hike fears. David Wyss, chief economist for Standard & Poor's, notes that solid data and "a bigger-than-expected jump in the CPI suggest the Fed will tighten earlier than previously anticipated." Unless data weaken, the Fed will raise rates in June, he says, adding that the May 4 meeting will likely "result in a change in the balance of risk to worrying about inflation, and less patience."

Still, some observers don't think the news will prompt Alan Greenspan & Co. into immediate action. Many on the Fed still think that higher commodity-led input costs will not get translated into higher consumer prices, according to economic research firm Informa Global Markets.

In other economic news Wednesday, the trade deficit narrowed to $42.1 billion in March, vs. a revised $43.5 billion in February. The deficit is slightly below analysts expectations of $43 billion. Imports rose 1.6%, while exports were up 4.0%, both to record levels (as one would expect in a brisk expansion), says Informa. "The deficit remains large, but things were generally in the right direction in March."

After Tuesday's close, Intel reported first-quarter profits of 26 per share -- a jump of 89% -- as revenues grew 20% amid strong demand for chips and cost controls. Analysts on average expected first-quarter earnings per share for the chipmaker to double to 27 cents, from 14 cents a year ago.

First-quarter sales were at the high end of expectations. Intel now forecasts second-quarter sales between $7.6 billion and $8.2 billion. S&P says that Intel's revenue guidance is below expectations, but maintains its buy rating of the shares. Intel finished 1% lower.

Other companies reporting earnings included Texas Instruments (TXN ), which reported first quarter earnings of 21 cents per share after Wednesday's session. The company saw a 34% revenue increase year-over-year to $2.94 billion, noting strength in its semiconductor business. Texas Instruments finished down about 1% at $28.68 in the regular Wednesday session. Delta Air Lines (DAL ), which posted a first quarter loss per share of $3.12, vs. a $3.81 loss, on a 4.3% rise in operating revenue. The airline has said that continued losses of this magnitude are unsustainable. Delta shares ended unchanged.

HCA shed 7.4% after announcing lower first-quarter earnings guidance, approximately 69 cents per share, a reflection of its March "hindsight analysis" of accounts receivable. S&P downgraded the shares to hold from buy and cut its estimates for HCA's first quarter and fiscal 2004. Merrill Lynch cuts its estimates, but kept its buy rating of HCA.

Bank of America (BAC ) was lower after posting first quarter earnings of $1.83 per share, vs. $1.59 on an 11% rise in net interest income, and a 6.9% total revenue rise.

Harley-Davidson (HDI ) posted first quarter earnings of 68 cents, vs. 61 cents on a 4.7% revenue rise. The motorcycle maker says that continuing strong performance supports its longer-range objectives to deliver an annual EPS growth rate in the mid-teens. The stock added 7%.

Restaurant shares suffered as McDonald's (MCD ) announced lower-than-expected March sales. McDonald's shares ended 4.5% lower after the burger chain announced first quarter guidance of 40 cents per share. The company posted a 5% rise in March same store sales, and a 12% total sales rise, but notes that its European comparable sales declined 2.9% in March. S&P has reiterated its hold rating of the stock, while CIBC World downgraded McDonald's to sector perform.

Apple Computer (APPL ) was expected to release its quarterly results at 5:00 p.m. EST on Wednesday.

On Thursday, the earnings calendar is busy with the likes of EMC (EMC ), PepsiCo (PEP ), IBM (IBM ), and KeyCorp (KEY ).

Treasury Market

Treasuries finished lower in price, but far from session lows Wednesday. An uptick in the CPI numbers sparked early selling, raising the 10-year yield. "Subsequent higher yields not seen since December, attracted buyers," reports Informa. Mortgage convexity hedging was out in full force, and such players were among the largest sellers.

The dollar made gains against major currencies.

No data are due Thursday, but Friday brings reports on housing starts, industrial production, capacity use, and the University of Michigan consumer sentiment survey.

World Markets

European markets finished lower Wednesday. The major indexes erased their gains from Tuesday as Intel upset traders with its guidance for the second quarter, and local economic news gave German and French bourses the jitters.

London's FTSE 100 index ended off by 30.4 points, or 0.67%, to 4,485.4, in reaction to Tuesday's slide in U.S. markets. The pound sterling was lower vs. the dollar, at $1.789, despite speculation that the Bank of England will hike rates soon. Britain's largest clothing retailer, Marks & Spencer, was lower after reporting an unexpected dip in its fourth quarter sales.

Germany's DAX index dipped 58.65 points, or 1.44%, to 4,012.77, on profit taking following a report that German consumer prices rose 1.1% on an annualized basis in March. Much of that rise is due to higher cigarette prices caused by increased tobacco tax, reports S&P's MarketScope. Infineon Technologies was lower after Intel said that its sales may slow this quarter.

France's CAC 40 index finished down 43.26 points, or 1.15%, to 3,731.43, also lower on reports that French consumer prices rose 0.4% in March, and that France had its first trade deficit in eight months in February. Meanwhile, French factory usage rose to 83.1% in March from 82.9% in February.

In Asia, markets finished lower. In Japan, the Nikkei 225 Index slipped 29.64 points, or 0.24%, to 12,098.18.

Hong Kong's Hang Seng index fell sharply, down 361.95 points, or 2.78%, to end at 12,669.86. "Sentiment in the market was hurt by both rates hike concerns and Beijing's recent move to further curb lending growth," reports MarketScope.