An unexpected drop in consumer confidence sent U.S. stocks lower Tuesday, as signs of stabilization in housing and Walgreen’s solid earnings failed to convince investors about the strength of an economic recovery. Although stocks rose slightly after the opening bell, the early morning release of the confidence report took the Street by surprise and signaled the American consumers are not as hopeful about an economic turnaround.
Stocks swung between gains and losses and volume remained light. Treasury prices declined, with the 10-year off 4/32 and the corresponding yield rising to 3.293%. The Dow Jones industrial average lost 47 points, or 0.5%. The S&P 500 index lost 2 points, or 0.2%. The tech-heavy Nasdaq composite retreated 2 points, or 0.2%. On the New York Stock Exchange, 1.18 billion shares exchanged hands with losers narrowly ahead of winners.
The greenback showed modest gains against a basket of currencies, closing at its highest level in three weeks, up 0.1%. Crude prices retreated 13 cents to $66.74 on demand issues.
Meanwhile, technology shares retreated from their year highs. As the group the shares fell 0.7%. Cisco (NASDAQ:CSCO), the biggest maker of networking equipment, lost 1.3% to $23.30 and Intel (NASDAQ:INTC), the largest producer of semiconductors, retreated 1.3% to $19.48.
Notable gainers included Walgreen Co. (NYSE:WAG) and Gannett Co. (NYSE:GCI). Walgreen Co. (NYSE:WAG) jumped 9.2% to $37.35, after the second-largest U.S. drugstore chain reported better-than-expected fourth-quarter per-share profit on the back of higher prescription-drug sales. Gannett Co. (NYSE:GCI) led the gainers on the S&P 500, rallying 18%, after the largest U.S. newspaper publisher said it sees third- quarter earnings above analysts’ forecasts and announced a plan to offer $400 million of senior notes.
Talks of exit strategies also gained ground. Dallas Fed President Fisher, almost endorsing recent comments from Fed Governor Warsh, cautioned that the Fed should start removing stimulus measures as soon as the recovery gains “traction.” Philadelphia Fed President Plosser talked about the possible need for “aggressive” moves by the Fed in the future to contain inflation. Release of the IMF’s twice-yearly Global Stability Report showed a $600 billion drop in expected financial system losses to $3.4 trillion. However, the report also cautioned, “Even so, credit channels are still impaired and the economic recovery is likely to be slow.”
Today’s calendar shows Atlanta Fed President Lockhart, notably hawkish, speaking on the US outlook at 2:30 ET and Vice Chairman Kohn discussing exit strategies at 4:35 ET.
