New York – Wall Street retreated Wednesday but managed a partial recovery late in the day as investors reacted uneasily to Federal Reserve Chairman Ben Bernanke’s comments on the economy and news that two Bear Stearns Cos. hedge funds were essentially worthless.
Even without any bad news, a downturn in stocks was expected after the rally that began last week. On Tuesday, the Dow nudged past the 14,000 mark for the first time. With no major catalyst behind the advance, the record run has been puzzling to some market-watchers trying to determine if it has room to build or has run its course.
Investors sold off shares as Bernanke, speaking before the House Financial Services panel as part of the central bank’s midyear forecast, said the economy should strengthen into 2008 and that inflation risks remain the Fed’s “predominant” concern. He also said the housing sector might get worse before it gets better – and remains a risk to consumer spending and overall economic growth.
Analysts said the Fed chief’s testimony didn’t contain anything new but that it still had a cautious overtone. Bernanke’s comments exacerbated investors’ concern over lackluster quarterly earnings reports and news that the Bear Stearns funds were left essentially worthless by bad bets on subprime loans.
“Bernanke didn’t really say a whole lot of things that were new, but he added to a combination of seemingly negative events,” said Todd Salamone, director of trading at Schaffer’s Investment Research.
Corporate earnings reports continued in earnest. JPMorgan Chase & Co. posted better- than-expected earnings, but the bank said it increased reserves set aside to cover mortgage losses. Also adding to investor concern, Intel Corp. reported lackluster profit margins for the second quarter, and Yahoo Inc. lowered its forecast.
The Dow fell 53.33, or 0.38 percent, to 13,918.22. The blue-chip index was down by as much as 134 points during the session.
Broader indexes also fell. The Standard & Poor’s 500 index fell 3.20, or 0.21 percent, to 1,546.17, while the Nasdaq composite index dropped 12.80, or 0.47 percent, to 2,699.49.
Bonds rose as fixed-income investors interpreted Bernanke’s comments on housing as favorable. The yield on the benchmark 10-year Treasury note fell to 5.03 percent from 5.07 percent late Tuesday.
A barrel of light, sweet crude rose $1.03 to $75.05 on the New York Mercantile Exchange.
