Wall Street Looks For Direction Before Fed
NEW YORK (MarketWatch) - Stock prices were mostly higher in indecisive action ahead of the Federal Reserve's much-anticipated rate decision and accompanying statement Tuesday afternoon.
"I don't think we'll see much direction until we have a clear picture in terms of what the Fed is thinking and any type of commentary around the whole subprime issue," said Owen Fitzpatrick, head of the U.S. equity group at Deutsche Bank.
The Dow Jones Industrial Average was 10.4 points higher at 13,478.4, with half of its 30 components on the decline.
The S&P 500 was up 3.78 points at 1,471.75, while the Nasdaq Composite was 1.06 points off at 2,546.27.
Trading volume showed 954.6 million shares exchanging hands at the New York Stock Exchange and 1.2 billion shares trading on the Nasdaq stock market. Declining issues ran about even with advancers on both exchanges.
"A lot of the volatility has to do with anticipation of what the Fed might or might not do," said Paul Mendelsohn, chief investment strategist at Windham Financial Services. "Labor costs are still running at the higher end here, that's something the Fed has to keep an eye on."
Boeing Co. was among the Dow's loss leaders, with its stock down 1.7%.
Automaker General Motors Corp. fronted the Dow's advancing stocks, gained 2% after GM said it completed the sale of its Allison Transmission commercial and military business to the Carlyle Group and Onex Corp. for about $5.6 billion.
Shares of leading U.S. banks and brokerage firms were mixed, with the stock of insurer Assurant Inc. up 2.1% after analysts at Merrill Lynch upgraded Assurant to buy.
Bear Stearns Cos. edged 2.8% higher after slipping earlier after Bloomberg News reported the company's decision to liquidate two bankrupt hedge funds in the Cayman Islands instead of New York might limit creditors' and investors' ability to get their money back.
Lehman Bros. analysts began coverage of private-equity and hedge fund Blackstone Group , giving it an overweight rating. Blackstone's shares gained 4.5%.
Luminent Mortgage Capital Inc. was cut to sell from neutral by UBS. Its stock was off about 80%. The lender suspended its quarterly dividend and said it would explore options including a sale.
Fed factor
The highlight of Tuesday's session will be the 2:15 p.m. Eastern Fed rates decision. The central bank is widely expected to leave the key overnight rate at 5.25%.
But many investors suspect that recent problems in the credit markets will force the Fed to note concern about an economic slowdown in its policy statement. For many months the Fed's top worry has been inflation.
Such a change in stance could pave the way for a rate cut in coming months.
Sentiment is likely to be cautious before the statement comes out. "Anything is possible before the Fed because we won't know anything until we see the statement," said Peter Boockvar, equity strategist at Miller Tabak. "
"We need to see the statement to see whether they are more focused on inflation or whether they acknowledge the weakness in the economy and the potential impact of credit problems on the economy," Boockvar said.
Earlier, the Labor Department reported that productivity in the second quarter rose 1.8%, below the 2.1% gain expected by economists polled by MarketWatch.
The wages and benefits component of the report suggested inflation may remain worrisome. The department said that unit labor costs - a key inflationary signal - rose at an annual rate of 2.1% in the second quarter. Economists had expected a 1.6% gain.
Other market moves
Treasury prices were mildly higher as the market awaited the Fed's interest rate decision, with the benchmark 10-year Treasury note up 1/32 at 98 5/32, yielding 4.738%.
The dollar rallied against European currencies after a government report showed a larger-than-expected rise in unilabor costs - an indication of inflation. In New York trade, the dollar was quoted at 118.34 yen, compared with 119.03 yen late Monday. The euro stood at $1.3762, compared with $1.3793.
Gold futures edged lower, with Gold for December delivery off $2.50 at $680.80 an ounce on the New York Mercantile Exchange.
Crude-oil futures extended their losses, weighed down by technical selling, weakness on Wall Street and ongoing concern that an economic slowdown will lower energy demand. Crude oil for September delivery fell 63 cents to $71.43 a barrel on the New York Mercantile Exchange.
On Monday stocks staged a strong comeback, after suffering a rout at the end of last week when investors dumped shares on fears the credit crunch is spreading throughout the economy.
By Kate Gibson