U.S. Stocks Mixed Ahead Of Fed Decision
NEW YORK (MarketWatch) -- U.S. stocks were mixed Wednesday, as caution ahead of the Federal Reserve's afternoon decision on interest rates kept a lid on the market and offset the boost from Morgan Stanley and Oracle Corp.'s strong earnings.
"The last two Federal Open Market Committee meetings produced rather significant rallies after the statement," said Marc Pado, chief U.S. market strategist at Cantor Fitzgerald.
The Fed will announce its decision at 2.15 p.m. The central bank is widely expected to leave interest rates unchanged but investors will focus on its statement for clues on future monetary policy.
The Dow Jones Industrial Average was down 15 points at 12,272, with 17 of its 30 components trading in negative territory. Shares of Alcoa Inc. were posting the biggest drop, losing 1%, while AT&T Inc. was the biggest gainer, rising 1.6%.
The S&P 500 rose 1 point to 1,411, while the Nasdaq Composite was up 1.3 points to 2,409.
Among tech shares, Oracle Corp. rose 2.3% after the business software maker reported a better-than-forecast 35% jump in quarterly profit on a 27% sales increase. Adobe Systems , gained 4% after the software maker posted a 37% profit rise, even though sales dropped more than predicted.
And shares of chip maker SanDisk gained 3.7%. The company and Hynix Semiconductor announced a patent cross-license pact. Separately, The Wall Street Journal published an article saying that its shares may be looking up after a 36% decline in the last five months.
Broker-dealers received a boost after Morgan Stanley posted a 70% rise in profit for the first quarter, handily beating Wall Street estimates. The stock rose 4.1%.
Yet, overall market activity remained subdued, with only 583 million shares exchanging hands on the New York Stock Exchange and 841 million shares trading on the Nasdaq. Advancing issues topped decliners by 17 to 13 on the NYSE, while decliners topped advancers by 14 to 13 on the Nasdaq.
Watching the Fed's language
Investors are eager for the 2.15 pm decision on interest rates. Analysts believe that the Fed is most likely to once again leave the overnight rate unchanged at 5.25%, so the focus will be on the statement that accompanies the rates decision.
"While there is no real expectation that the Fed will act, the language will be important," Pado said. "Traders are clearly expecting a market friendly commentary."
For many months, Fed statements have stressed the need to fight inflation, even as economic data has shown that the economy is slowing.
The meltdown in the subprime mortgage market is also raising concerns that money lenders are tightening lending standards, which could worsen both the housing and the economic downturn.
Investors will be eager to learn whether Fed members are becoming more concerned about economic growth, which could open the door for rate cuts later this year. At the same time, the market also needs reassurance about the financial system.
"If the Fed were to admit that the economy was slowing, this could open the door to a rate cut in May," Pado said. "However, I think the Fed will keep from making such a broad-brushed statement. Look for the Fed to admit that housing remains a concern, but we have not seen the weakness spread to the rest of the economy."
Meanwhile, the KBW Mortgage Finance Index was again higher Wednesday, after rebounding on Tuesday.
On Tuesday, stocks rose for a second day in a row. A jump in February housing starts and a $200 million loan for subprime lender Accredited Home Lenders helped shore up sentiment. Accredited shares were up 7.6%, continuing their rebound after plunging 18% on Monday.
And on Wednesday, Fremont General Corp. rose 14% after the lender said it will book a $140 million pre-tax loss of $4 billion of its subprime residential real estate loan portfolio. The company said it's receivd a first installment of $950 million in the deal, with other sales agreements expected over the next several weeks. Fremont did not name the buyer.
By sector, oil services , natural gas and metals miners led the gains, while utilities , transportation and multimedia networking led the declines.
Weighing on transports, FedEx Corp. dropped 1.9%. The shipper said its fiscal third-quarter earnings fell 2% to $420 million, or $1.35 a share, from $428 million, or $1.38 a share, a year earlier, hurt by a "slowing economic environment", lower fuel surcharges and 6 cents a share due to winter storms.
Also, crude oil futures rose 25 cents to $59.50 a barrel, paring gains after the release of inventory supply numbers for the latest week.
On the upside, JetBlue Airways Corp. reiterated a forecast of a minus-2% to minus-4% operating margin in the first quarter, when its operations were plagued by winter storms and delays, but also said its 2007 operating margin would be 7% to 9%. The stock rose 1.7%.
Other markets
Treasury price market action was restrained ahead of the Fed decision. The benchmark 10-year Treasury note last was down 1/32 at 100-16/32 with a yield of 4.558%.
The dollar rose against other major currencies, recovering from declines in the previous session.
Gold futures were steady in the early going, The April futures contract last was $1.80 higher at $660.80 an ounce.
By Nick Godt