Stocks Slide on Fed Forecast, Oil Prices

Tag : Composite Paper Packing

Updated from 4:23 p.m. EDT Stocks in the U.S. were slammed Wednesday as some soberingpredictions by the Federal Reserve and record crude oil prices sent bulls packing. The Dow Jones Industrial Average plunged 227.49 points, or 1.77%, to 12,601.19, as every single oneof its components closed in the red. The S&P 500 was down 22.69 points, or 1.61%, at 1390.71, and the Nasdaq Composite was off 43.99 points, or 1.77%, to 2448.27. Soaring oil and disappointing corporate news already had beenweighing on equity measurers, but the declines steepened after theFed revealed it had negatively revised a number of its 2008forecasts in the minutes from its April 30 meeting, when thefed-funds target rate was cut by another quarter-point. "There's been a fair amount of good news lately, and the Fed iskind of acting as a wet noodle," said Doug Roberts, chiefinvestment strategist with ChannelCapitalResearch.com. "They'reindicating that, both on the inflation front and on the economicfront, it's going to be a prolonged malaise. It's one thing if youhave a bad storm and then it clears up, but you're told it's goingto rain for 40 days and 40 nights in the summer, you're going toget depressed." Among the revisions, the Fed bumped up its fourth-quarterunemployment-rate forecast to between 5.5% and 5.7%, compared withthe prior range of 5.2% to 5.3%. The central bank also raised itsfull-year core inflation estimate to between 2.2% and 2.4% whileslashing its 2008 prediction for real gross domestic product growthto between 0.3% to 1.2% -- down sharply from 1.3% to 2% previously. Marc Chandler, chief foreign exchange strategist at Brown BrothersHarriman and contributor to RealMoney.com , a sister site to TheStreet.com , wrote that the revision of GDP expectations "seems exceptionallypessimistic and perhaps an over-correction. Their negativity seemsto be based on view of more and marked deterioration in the labormarket which will restrain spending." The minutes also said that most members of the Federal Open MarketsCommittee, the policymaking arm of the Fed, viewed the decision tocut the fed funds target rate even by a scant 25 basis points as a"close call." Furthermore, most "agreed that a further, modesteasing in the stance of policy was appropriate to balance betterthe risks to achieving the Committee's dual objectives of maximumemployment and price stability over the medium run." That seems to imply that the Fed has indeed paused its easingcampaign, which has brought down its benchmark lending rate by 325basis points since September. Still, said Roberts, "They're not making it explicit that theywon't cut rates at all. The worst that can happen is that they'lladopt a hawkish policy, and all of a sudden the market takes adownturn, the labor situation gets worse, and they look likethey're behind the curve." "They're saying that they'd like to cut rates if necessary, but notto expect it any time soon," he added. Stocks' breadth was dismal. Declining issues outpaced advancers bya 7-to-3 margin on both the New York Stock Exchange and the Nasdaq, which saw volume reach 2.25 billion shares and2.19 billion shares, respectively. Keeping pressure on stocks earlier was oil's continued rampage intouncharted territory. The newly benchmarked July crude contractrocketed to a new all-time high of $133.35 a barrel on wordstockpiles declined 5.4 million barrels last week, according to theEnergy Information Administration. Futures settled up $4.19 at$133.17. Also, the national average for gas prices at the pumptoday reached another record of $3.807 a gallon. Gold futures tacked on $8.40 to $928.60 an once. The U.S. dollarhad another weak day, losing ground against both the euro and theyen. The dollar index, which measures the greenback against abasket of its major competitors, sank 0.7%. The financial sector was also helping to drag down equity measures,with the NYSE Financial Sector Index and the KBW Bank Indexplummeting 2.5% and 2.3%, respectively. The Wall Street Journal reported that some big banks, having bet against indexes thattrack real estate securities and leveraged loans, may have seentheir hedging strategies backfire amid the market's rebound overthe past few months. The paper named Lehman Brothers LEH as possibly the worst hit here, and said it's likely that Morgan Stanley MS has also been hurt by that strategy. Shares slid 5.8% and 4.3%,respectively, as fellow brokerages Goldman Sachs GS and Merrill Lynch MER gave up 2.1% and 2.9%. Elsewhere in the financial space, Dow components Citigroup C , Bank of America BAC , and JPMorgan Chase JPM sank 2.2% or more. Investors also appeared jarred by a Financial Times report saying that Moody's MCO mistakenly gave triple-A ratings to billions of dollars in debtbefore fixing the error in early 2007. Moody's itself was sliding15.9%. At the same time, American Airlines parent AMR Corp. AMR tumbled 24.2% after saying it will reduce domestic flights and staff capacity by 11% to 12% in the fourth quarter, citing agonizing fuel costsand a tough macro environment overall. That, together with the surge in crude, seemed to weigh on aircraftmaker Boeing BA . The stock lost 4.6% to become one of the day's worst-performingDow components. Soleil downgraded AMR and United operator UAL Corp. UAL to sell while cutting Continental CAL to hold from buy, and Lehman Brothers sliced its price targets onall three. UAL shares fell 29.5%, and Continental lost 13.2%.