Stocks mixed on Greenspan remarks
Stocks staggered to a mixed finish Wednesday after Federal Reserve Chairman Alan Greenspan told a congressional committee the economy is strong, a sign that the central bank is likely to continue raising interest rates.
Greenspan also told the Senate Banking Committee that while inflation is not an immediate threat, it remains something policymakers must guard against.
His remarks seemed to support the views of many economists that the Fed will likely stick with its policy of raising interest rates at a gradual pace. The dollar firmed against other currencies, gold declined and Treasuries weakened, but stocks stalled as investors tried to discern how far the rate tightening would go.
“The problem for stocks is there’s no end in sight,” said Jack Ablin, chief investment officer at Harris Private Bank in Chicago. “Greenspan still thinks rates are too low, and he has no intention to stop raising rates. And history has shown the Fed doesn’t just stop raising rates on its own. Something happens. We don’t know what it will be, but I know that’s the thing that keeps me up at night.”
The Dow Jones industrial average shed 2.44, or 0.02 percent, to 10,834.88.
The broader gauges were narrowly mixed. The Standard & Poor’s 500 rose 0.22, or 0.02 percent, to 1,210.34. The Nasdaq composite index was down 1.78, or 0.09 percent, at 2,087.43.
Greenspan said Fed officials have been “confounded” by the bond market’s reaction to its monetary policy. Bonds have rallied as the Fed raised short-term rates, sending the yield on the 10-year Treasury note below 4 percent last week.
The 10-year note fell Wednesday, and the yield stood at 4.16 percent — 46 basis points lower than it was on June 30, when the Fed announced the first rate hike in the current cycle. Wednesday’s comments underscored the Fed’s belief that long-term rates should rise eventually, but in the absence of inflation, there may be little to drive them higher.
In other economic news, the Fed reported output at the nation’s factories, mines and utilities was unchanged in January, a disappointment to analysts who had expected a healthy 0.3 percent increase.
Oil prices were volatile, climbing $1.07 to settle at $48.33 as traders sifted through the government’s weekly report on fuel inventories. Tensions in the Middle East and an OPEC forecast for rising demand contributed to the price rise. U.S. stores of crude and gasoline grew more than analysts had anticipated, but there was a higher-than-expected draw on distillate fuels, which include heating oil.
Advancing issues outnumbered decliners by about 5 to 4 on the New York Stock Exchange. Volume came to 1.49 billion shares, compared with 1.52 billion traded Tuesday.
The Russell 2000 index, which tracks smaller company stocks, was up 3.91, or 0.62 percent, at 638.85.
Overseas, Japan’s Nikkei stock average shed 0.38 percent. In afternoon trading in Europe, France’s CAC-40 lost 0.53 percent, Britain’s FTSE 100 fell 0.11 percent and Germany’s DAX index was down 0.76 percent.