Wall Street Retreats After Bernanke Comments on Growth, Inflation
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Wednesday, June 6, 2007
NEW YORK, June 5 -- Wall Street skidded lower Tuesday after comments from Federal Reserve Chairman Ben S. Bernanke and a strong reading on the service sector suggested that the central bank has little reason to lower interest rates.
The Dow Jones industrial average fell 80.86, or 0.59 percent, from Monday's record close to 13,595.46. Broader indicators also retreated. The Standard & Poor's 500-stock index fell 8.23, or 0.53 percent, from Monday's record close to 1530.95, while the Nasdaq composite index shed 7.06, or 0.27 percent, to 2611.23.
Bernanke remarked that the economy will recover from its recent feeble performance, despite a housing slump that he said could drag on the economy for longer than anticipated.
Bernanke's forecast for rebounding growth, as well as his assessment that inflation is "ebbing" but remains "somewhat elevated," made it appear unlikely that the Fed will lower rates anytime soon, a disappointment for investors. Behind the stock market's surge, driven in part by strong takeover activity, has been a backdrop of stable interest rates and the possibility of a rate cut; recently, though, with bond yields creeping up, some investors fear that the Fed may alter that climate.
The Institute for Supply Management issued its service-sector report Tuesday. The institute's non-manufacturing index came in at 59.7 in May, higher than expected and up from April's reading of 56. A reading above 50 indicates expansion in the service sector, a diverse group of industries that represents about 80 percent of U.S. economic activity. Investors want to see growth but worry that if it's too robust, it could prompt a rate increase.
Before Tuesday's decline, the Dow and the S&P 500 had risen more than 8 percent since the beginning of the year.
Movers
Google surged $11.77, to $518.84, an all-time high. It signed an advertising agreement with Salesforce.com.
Ryanair lost $1.69, to $38.66, after making a cautious forecast for the rest of 2007.
Avaya gained 31 cents, to $17.03, a day after it announced that it accepted an $8.2 million buyout bid by private-equity firms.
Bed Bath & Beyond fell $2.20, to $38.27.
