Market retreats for third straight day
NEW YORK – Wall Street pulled back for the third straight day Wednesday as investors still uneasy about the economy sold off after a Federal Reserve official suggested rising inflation could prevent the central bank from making further interest rate cuts.
Although the economic slowdown is a big concern, “we must not lose sight of the other part of the Fed’s dual mandate – which is price stability,” Federal Reserve Bank of Philadelphia President Charles Plosser said, according to Dow Jones Newswires. The economy has been weakening but costs remain high, leading some economists to believe that the United States is headed for a troubling predicament known as stagflation.
Plosser’s comments were not surprising, particularly since he is known for being more apt to argue against a rate cut than other Fed members. Nonetheless, the speech – along with a dismal sales report from Macy’s – cut short a rebound from Tuesday’s plunge that gave the Dow Jones industrials their biggest percentage drop since Feb. 27,2007.
The reminder about inflation also sapped some of Wall Street’s relief over better-than-expected fourth-quarter productivity and labor cost data and profit results from Walt Disney Co.
“It just shows you the market’s really skittish and temperamental,” said Jim Herrick, director of equity trading at Baird & Co. “I really believe the market is driven by emotion, that there’s this want to test the lows again.”
The Dow fell 65.03, or 0.53 percent, to 12,200.10, after rising more than 100 points in earlier trading.
On Tuesday, the blue-chip index dropped 370 points, or 2.93 percent, after the Institute for Supply Management reported a surprising January contraction in the U.S. service sector – news that bolstered the argument that the nation is in recession. The Dow also lost 108 points on Monday, but because it rallied so strongly last week, it remains above the 15-month low it sank to in late January.
Broader stock indicators also gave up gains Wednesday. The Standard & Poor’s 500 index fell 10.19, or 0.76 percent, to 1,326.45, and the Nasdaq composite index fell 30.82, or 1.33 percent, to 2,278.75.
Overseas stocks were mixed. Japan’s Nikkei stock average dropped 4.7 percent and Hong Kong’s Hang Seng index fell 5.4 percent. In Europe, Britain’s FTSE 100 rose 0.13 percent, Germany’s DAX index rose 1.22 percent, and France’s CAC-40 rose 0.83 percent.