Stocks gave up substantial early gains Wednesday to end the first session of 2007 mixed after minutes from the Federal Reserve’s last meeting showed growing concern at the central bank about the severity of the pullback in the housing sector.
Though the minutes from the Fed’s Dec. 12 meeting said inflation continues to moderate, the bleak assessment of the housing market unnerved investors who were betting that the sector’s problems wouldn’t necessarily spill over into other portions of the economy.
Release of the minutes sapped strength from the market on a day that had seen triple-digit gains and a new trading high for the Dow Jones industrials.
“The concern is that the Fed was seeing something at their last FOMC meting that suggested potentially more pronounced weakness than we had all been anticipating in the economy,” said Drew Matus, senior economist at Lehman Brothers Inc.
The Dow was ended the day up 11.37, or 0.09 percent, at 12,474.52 after surging to a new trading high of 12,580.35.
Broader stock indicators were mixed. The Standard & Poor’s 500 index fell 1.67, or 0.12 percent, to 1,416.63, while the tech-laden Nasdaq rose 7.87, or 0.33 percent, to 2,423.16.
Bonds rose following release of the Fed minutes, with the yield on the benchmark 10-year Treasury note falling to 4.66 percent from 4.71 percent late Friday.
The dollar was mixed against other major currencies, while gold prices fell.
Light, sweet crude settled $2.73 to $58.32 per barrel on the New York Mercantile Exchange as mild weather continued its hold over much of the United States, cutting demand for heating oil and natural gas.
The mixed finish to the market’s first foray into the new year signals that investors might be in for more of the ups-and-downs seen since the market began marching sharply higher in the fall. Wall Street has been hungry for economic and corporate news as it tries to determine whether the economy can cool gradually without sinking into recession. Conflicted investors have in recent months appeared to be casting about trying to determine which way the markets might head and at times have reacted forcefully to a single piece of fresh news.
Matus contends the pullback in the markets Wednesday was overblown given recent data.
“It doesn’t make a lot of sense to react to something that is three weeks old and doesn’t incorporate the data that we got between now and then. The manufacturing data today suggests things were going OK as we headed into the end of the year.”
Advancing issues outnumbered decliners by about 9 to 8 on the New York Stock Exchange, where consolidated volume came to 3.49 billion shares, compared with 1.66 billion traded Friday. Wednesday’s activity was bloated by the fact it was not only the first trading day of the year, but the first time investors were able to trade in four days. Friday, meanwhile, was a day of anemic volume ahead of the New Year’s holiday.
The Russell 2000 index of smaller companies fell 0.24, or 0.03 percent, to 787.42.
Overseas, Japan’s stock market was closed for the continuing New Year’s holiday. Britain’s FTSE 100 closed up 0.13 percent, Germany’s DAX index was up 0.15 percent, and France’s CAC-40 was down 0.12 percent.