Stocks stumbled today as mixed economic news and further hints of higher interest rates from Federal Reserve Chairman Alan Greenspan kept buyers at bay.
The Fed chairman offered a modest endorsement of President George Bush’s idea of setting up private retirement accounts for younger workers in testimony before the House Financial Services Committee, but said that alone would not solve Social Security’s long-term problems.
Reiterating remarks made to a Senate panel yesterday, Mr Greenspan also said the economy continues to expand at a respectable pace, and that inflation, while not an immediate threat, remains something policy-makers must guard against.
“Greenspan is doing a good job of preparing American investors for what’s ahead: We’re in a period of rising interest rates and that’s going to continue,” said Thomas F Lydon Jr, president of Global Trends Investments in Newport Beach, California.
“He’s done an excellent job of balancing the hikes, letting people know it’s going to continue, and the market’s done a good job of factoring that in. I don’t think anything he’s saying is shocking anybody.”
The Dow Jones industrial average lost 80.62, or 0.74%, to 10,754.26.
The broader gauges also fell. The Standard & Poor’s 500 index was down 9.59, or 0.79%, at 1,200.75. The Nasdaq composite index shed 26.09, or 1.25%, to 2,061.34.
Analysts attributed the day’s trading to a lack of certainty about the strength of the economy, the pace of inflation and how much higher interest rates will go.
The prospect of higher rates and questions about how much they will slow down the economy has made many investors wary of taking big bets, said John P Waterman, chief investment officer at Rittenhouse Asset Management.
“There’s always the risk that the Fed steps on the brakes too hard,” Mr Waterman said.
“We’re in kind of a delicate transition. We’re trying to get from a recovery mode to a more sustainable mode. Once you get through that, and investors become convinced the economy is going to settle into a sustainable growth mode, then I think the market will start to do better. But we’re in a digestion period right now.”
Jobless claims were down for a third straight week, the Labour Department reported, as the number of laid-off workers filing for unemployment benefits dropped to the lowest level in more than four years. The decline surprised economists, who had forecast an increase.
The data served as fresh evidence of continuing improvements in the labour market.
In another report, the department said prices for imported goods rose by 0.9% in January as foreign petroleum prices jumped 4.6% and the price of non-petroleum imports edged up 0.2%. Import prices are expected to continue rising this year as the weaker dollar makes foreign products more expensive for Americans.
Decliners outnumbered advancing issues by almost 2 to 1 on the New York Stock Exchange.
The Russell 2000 index, which tracks smaller company stocks, was down 7.71, or 1.21%, at 631.14.