Stocks finished mostly lower on Tuesday, as economic concerns deepened despite a retreat in oil prices on a stronger dollar and news that Saudi Arabia was calling for a meeting to discuss oil prices. The Republicans also blocked a Senate vote on a bill that would have taxed oil profits and implemented other measures to protect consumers.
On Tuesday, the blue-chip Dow Jones industrial average closed 9.44 points, or 0.08%, higher at 12,289.76. The broader Standard & Poor's 500-stock index shed 3.32 points, or 0.24%, to end at 1,358.44. The tech-heavy Nasdaq composite index fell 10.52 points, or 0.43%, to 2,448.94.
On the New York Stock Exchange, 21 stocks were falling for every 11 that were on the rise, while on the Nasdaq the ratio was 16-12 negative.
The widening of the U.S. trade deficit in April on higher oil imports was weighing on stocks, as were interest rate concerns. Federal Reserve Chairman Ben Bernanke late on Monday signalled the central bank was finished cutting rates and would act to strongly resist rising inflation, a topic the Fed chief will address in another speech Tuesday night. Dallas Fed President Richard Fisher said the central bank should be deliberate about changing rates.
With central banks around the world sounding off recently about their intentions to fight inflation, Diane Dercher, chief economist at Waddell & Reed Financial in Overland Park, Kans., says she expects more hawkish talk about higher interest rates from Fed governors in the days ahead.
"From the Fed's perspective, they’re in a tough situation here. It’s a food and energy problem [but] raising interest rates here doesn't solve that problem," she says. "To me, it only hurts the economy more."
Bond prices were lower on the prospect of higher rates. The dollar index was up amid intervention rumors. Gold futures were skidding, but oil futures were rising. Fears of more carnage in the banking sector remain in focus after Lehman Brothers Holdings' (LEH) pre-earnings confessional Monday, reports Action Economics.
Lehman Brothers' disclosure prompted Credit Suisse to downgrade the stock to neutral from outperform. On Monday, the company forecast a second-quarter net loss of about $2.8 billion, or $5.14 per share.
The prospect of the European Central Bank raising interest rates as soon as July are forcing Bernanke & Co. to take a tougher stance on defending the value of the dollar, say strategists. If the ECB does raise rates, that would require a coordinated effort from the Fed, which has "the potential to damage the nascent economic recovery we think we’re seeing here," says Phil Orlando, chief equity market strategist at Federated Investors in New York. But leaving rates where they are would push the value of the dollar lower and send crude prices higher, he adds.
The U.S. trade deficit widened 7.8% to $60.9 billion in April, from $56.5 billion in March, which was revised from an earlier reading of $58.2 billion. The April reading was wider than the $59.6 billion deficit that markets had expected. Both imports and exports rebounded sharply, with imports surging 4.5% on energy-related products after a 3.3% drop in March. Exports were up 3.3% after falling 1.9% in March. The deficit with OPEC rose to $15.6 billion from $14.1 billion.
Oil prices were trading lower, reversing initial gains, after the Saudi Arabian Oil Ministry told CNBC Business News that the country's oil production rose by almost 500,000 barrels a day to 9.54 million barrels in the second quarter. Saudi Arabia is also calling for a meeting on prices, calling the current levels unreasonable and unacceptable.
WTI crude oil futures for July delivery settled $3.04 lower at $131.31 a barrel. The U.S. Department of Energy said that the average price of regular unleaded gasoline rose to a record $4.039 a gallon during the last week, the eighth consecutive weekly increase.
But oil supply concerns continue to outweigh worries about demand destruction due to elevated prices.