NEW YORK – Wall Street fell moderately Monday as investors anxiously awaited the Federal Reserve’s impending decision on interest rates.
The market is betting on a rate cut from the Fed when the central bank meets today, but investors are not completely sure what it will do and what it will say in its accompanying economic statement. Furthermore, with the major brokerages’ third-quarter results yet to be released, investors are uncertain about how badly the summer’s stock downturn, souring home loans and credit squeeze hit the banking industry.
Adding to the uneasiness, Northern Rock PLC, Britain’s fifth-largest mortgage lender, saw its stock plunge and customers withdraw billions of dollars after it issued a profit warning Friday and drew on emergency funds from the Bank of England. That gave U.S. investors an added impetus to pare their stock holdings, particularly in the financial sector.
Talk from former Fed Chairman Alan Greenspan of the possibility of a recession amid high inflationary pressures also elevated Wall Street’s jitters, as did job cuts at Merrill Lynch & Co.’s First Franklin Financial Corp.
It’s possible the Fed won’t go through with a rate cut at all if it believes the economy is still growing moderately and that inflation remains a threat, but most investors expect the Fed to cut the benchmark federal funds rate by at least a quarter-point.
And because negative economic data have trickled in over the past couple of weeks some anticipate a half-point rate cut.
The Dow Jones industrial average fell 39.10, or 0.29 percent, to 13,403.42.
Broader stock indicators showed somewhat steeper losses. The Standard & Poor’s 500 index fell 7.60, or 0.51 percent, to 1,476.65, and the Nasdaq composite index lost 20.52, or 0.79 percent, to 2,581.66. The Russell 2000 index, which tracks small company stocks, fell 7.68, or 0.98 percent, to 775.81.
Bonds rose modestly, pushing the yield on the 10-year Treasury note down to 4.47 percent from 4.48 percent late Friday.
The prospect of a recession has been keeping the markets volatile.
Greenspan said in an interview with NBC before the markets opened Monday that the risk of a recession is higher than it was at the beginning of the year, but not by much.
In Europe, Britain’s FTSE 100 fell 1.69 percent, Germany’s DAX index fell 0.24 percent, and France’s CAC-40 fell 1.80 percent.
Japanese markets were closed Monday for a holiday.
China’s volatile Shanghai Composite Index rose 2.1 percent to a record, but most Asian stocks fell.
Hong Kong’s Hang Seng Index declined 1.20 percent.