Bernanke remarks add to Wall St gloom
Bernanke remarks add to Wall St gloom
By Michael Mackenzie in New York
Copyright The Financial Times Limited 2007
Published: July 18 2007 14:05 | Last updated: July 18 2007 15:41
Wall Street stocks were lower at mid-morning on Wednesday, hurt by downbeat earnings from a number of companies and cautious remarks on the outlook for the economy from Ben Bernanke, the US Federal Reserve chairman.
In his prepared remarks before Congress, Mr Bernanke stressed concerns over inflation and the housing market.
The Fed also lowered its forecast for the US economy for 2007 and 2008, and believes growth will range between 2.25 per cent to 2.5 per cent this year.
“One risk to the outlook is that the ongoing housing correction might prove larger than anticipated, with possible spillovers onto consumer spending,” said Mr Bernanke. “Yet another risk is that energy and commodity prices could continue to rise sharply, leading to further increases in headline inflation and, if those costs passed through to the prices of non-energy goods and services, to higher core inflation as well.”
Stocks were already under pressure before Mr Bernanke spoke, hurt by downbeat earnings reports and guidance from the likes of Intel, Yahoo, and several blue chips.
The troubled subprime mortgage market was again exacting a toll on financials after Bear Stearns said late on Tuesday that the sub prime mortgage related assets held by two of its hedge funds were virtually worthless. Bear’s stock price was 1.1 per cent lower at $138.36. The bank recently extended a loan of $1.6bn to the less levered hedge fund.
Less than an hour after the opening bell, the S&P 500 index was 0.4 per cent lower at 1,543.01. Just two of the main 10 sectors in the index were higher, energy and utilities. Leading declines were financials, technology and telecoms.
Meanwhile, shares in Macy’s, the department store, surged 9 per cent to $43.64, amid talk that Kohlberg Kravis & Roberts, the private equity firm, could make a $24bn buy-out.
At mid-morning, the Nasdaq Composite was 0.75 per cent weaker at 2,691.82. Sentiment for technology stocks was hit hard ahead of the opening bell after two bellwether companies disappointed investors with their latest results.
After the closing bell on Tuesday, Intel posted better-than-forecast earnings, but its gross margin fell. Intel was 4.4 per cent lower at $25.18, after the chip maker had set a 52-week high of $26.52 on Tuesday.
Yahoo results late on Tuesday met estimates but guidance for the third quarter was lowered. Yahoo was down 4.9 per cent at $26.18.
Other technology companies due with results on Wednesday include Ebay and IBM while Google reports on Thursday.
Blue chips were roiled by a number of earnings reports on Wednesday, and at midmorning the Dow Jones Industrial Average was down 0.3 per cent 13,927.25.
United Technologies reported a second quarter net income rise of 4 per cent from the same quarter last year, beating estimates. UTX was trading 1.9 per cent lower at $75.36.
Altria said its second-quarter income fell more than 18 per cent as the company lowered its full-year earnings guidance. The stock was 1.4 per cent at $70.28.
JP Morgan said its second-quarter net income rose 20 per cent, but noted weakness in regional banking and car finance. The stock was trading 2.2 per cent lower at $48.81.
Pfizer quarterly profit fell 48 per cent, hurt by restructuring costs and weaker-than- expected drug sales. Pifzer did endorse its guidance for 2007 and 2008 and its stock was down 3 per cent at $25.17.
In economic news, the consumer price index rose 0.2 per cent in June. The core rate excluding food and energy rose 0.2 per cent, and was up from a 0.1 per cent rise in May. Economists had expected a 0.1 rise in headline CPI, with a 0.2 per cent core rate forecast.
The overall CPI rose 2.7 per cent over the past year, while core CPI was up 2.2 per cent, steady with the annualised rate for May.
Stephen Stanley, chief economist at RBS Greenwich Capital said: “Core inflation has behaved considerably better in the past few months and the near-term worries have receded, but the risks of too-high inflation remain and will keep the Fed uneasy.“
In his prepared remarks before lawmakers, Mr Bernanke said the Fed expected core inflation to remain in a range of 2.00 per cent to 2.25 per cent in 2007, and then fall to a band of 1.75 per cent to 2.00 per cent in 2008.
“Whether core inflation, at 2.2 per cent year-over-year, is contained or entrenched will remain a debate,” said TJ Marta, strategist at RBC Capital Markets.
Mr Stanley said: “If the economy strengthens in the second half, as we expect, then core inflation will likely become a bigger concern, ultimately forcing the Fed to hike rates at some point, either late this year or in the first half of 2008.”
Meanwhile, housing starts rose 2.3 per cent to a seasonally adjusted 1.467m annual rate in June, reversing some of the 3.4 per cent slide in May. However the May starts were revised lower from an original decline of 2.1 per cent.
“Although the data is not good news for the near term it does suggest that builders have reacted quickly to the downturn in housing and are making efforts to limit additions to already bloated inventories,” said Drew Matus, economist at Lehman Brothers in New York. “This should help contain price declines and limit the secondary wealth effects on consumers whose homes are not seeing the same sort of home price appreciation they have seen in the past.”
On Tuesday, the Dow Jones Industrial Average closed up 0.15 per cent at a record level of 13,971.55. The benchmark also set an intra-day record high of 14,021.95.
The broader S&P 500 index pared early gains and closed relatively flat at 1,549.37.
Leading the major benchmarks on Tuesday was the technology-laden Nasdaq Composite, up 0.55 per cent at 2,712.29.
By Michael Mackenzie in New York
Copyright The Financial Times Limited 2007
Published: July 18 2007 14:05 | Last updated: July 18 2007 15:41
Wall Street stocks were lower at mid-morning on Wednesday, hurt by downbeat earnings from a number of companies and cautious remarks on the outlook for the economy from Ben Bernanke, the US Federal Reserve chairman.
In his prepared remarks before Congress, Mr Bernanke stressed concerns over inflation and the housing market.
The Fed also lowered its forecast for the US economy for 2007 and 2008, and believes growth will range between 2.25 per cent to 2.5 per cent this year.
“One risk to the outlook is that the ongoing housing correction might prove larger than anticipated, with possible spillovers onto consumer spending,” said Mr Bernanke. “Yet another risk is that energy and commodity prices could continue to rise sharply, leading to further increases in headline inflation and, if those costs passed through to the prices of non-energy goods and services, to higher core inflation as well.”
Stocks were already under pressure before Mr Bernanke spoke, hurt by downbeat earnings reports and guidance from the likes of Intel, Yahoo, and several blue chips.
The troubled subprime mortgage market was again exacting a toll on financials after Bear Stearns said late on Tuesday that the sub prime mortgage related assets held by two of its hedge funds were virtually worthless. Bear’s stock price was 1.1 per cent lower at $138.36. The bank recently extended a loan of $1.6bn to the less levered hedge fund.
Less than an hour after the opening bell, the S&P 500 index was 0.4 per cent lower at 1,543.01. Just two of the main 10 sectors in the index were higher, energy and utilities. Leading declines were financials, technology and telecoms.
Meanwhile, shares in Macy’s, the department store, surged 9 per cent to $43.64, amid talk that Kohlberg Kravis & Roberts, the private equity firm, could make a $24bn buy-out.
At mid-morning, the Nasdaq Composite was 0.75 per cent weaker at 2,691.82. Sentiment for technology stocks was hit hard ahead of the opening bell after two bellwether companies disappointed investors with their latest results.
After the closing bell on Tuesday, Intel posted better-than-forecast earnings, but its gross margin fell. Intel was 4.4 per cent lower at $25.18, after the chip maker had set a 52-week high of $26.52 on Tuesday.
Yahoo results late on Tuesday met estimates but guidance for the third quarter was lowered. Yahoo was down 4.9 per cent at $26.18.
Other technology companies due with results on Wednesday include Ebay and IBM while Google reports on Thursday.
Blue chips were roiled by a number of earnings reports on Wednesday, and at midmorning the Dow Jones Industrial Average was down 0.3 per cent 13,927.25.
United Technologies reported a second quarter net income rise of 4 per cent from the same quarter last year, beating estimates. UTX was trading 1.9 per cent lower at $75.36.
Altria said its second-quarter income fell more than 18 per cent as the company lowered its full-year earnings guidance. The stock was 1.4 per cent at $70.28.
JP Morgan said its second-quarter net income rose 20 per cent, but noted weakness in regional banking and car finance. The stock was trading 2.2 per cent lower at $48.81.
Pfizer quarterly profit fell 48 per cent, hurt by restructuring costs and weaker-than- expected drug sales. Pifzer did endorse its guidance for 2007 and 2008 and its stock was down 3 per cent at $25.17.
In economic news, the consumer price index rose 0.2 per cent in June. The core rate excluding food and energy rose 0.2 per cent, and was up from a 0.1 per cent rise in May. Economists had expected a 0.1 rise in headline CPI, with a 0.2 per cent core rate forecast.
The overall CPI rose 2.7 per cent over the past year, while core CPI was up 2.2 per cent, steady with the annualised rate for May.
Stephen Stanley, chief economist at RBS Greenwich Capital said: “Core inflation has behaved considerably better in the past few months and the near-term worries have receded, but the risks of too-high inflation remain and will keep the Fed uneasy.“
In his prepared remarks before lawmakers, Mr Bernanke said the Fed expected core inflation to remain in a range of 2.00 per cent to 2.25 per cent in 2007, and then fall to a band of 1.75 per cent to 2.00 per cent in 2008.
“Whether core inflation, at 2.2 per cent year-over-year, is contained or entrenched will remain a debate,” said TJ Marta, strategist at RBC Capital Markets.
Mr Stanley said: “If the economy strengthens in the second half, as we expect, then core inflation will likely become a bigger concern, ultimately forcing the Fed to hike rates at some point, either late this year or in the first half of 2008.”
Meanwhile, housing starts rose 2.3 per cent to a seasonally adjusted 1.467m annual rate in June, reversing some of the 3.4 per cent slide in May. However the May starts were revised lower from an original decline of 2.1 per cent.
“Although the data is not good news for the near term it does suggest that builders have reacted quickly to the downturn in housing and are making efforts to limit additions to already bloated inventories,” said Drew Matus, economist at Lehman Brothers in New York. “This should help contain price declines and limit the secondary wealth effects on consumers whose homes are not seeing the same sort of home price appreciation they have seen in the past.”
On Tuesday, the Dow Jones Industrial Average closed up 0.15 per cent at a record level of 13,971.55. The benchmark also set an intra-day record high of 14,021.95.
The broader S&P 500 index pared early gains and closed relatively flat at 1,549.37.
Leading the major benchmarks on Tuesday was the technology-laden Nasdaq Composite, up 0.55 per cent at 2,712.29.
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