Stocks retreated Wednesday after two days of winning run as sovereign debt worries and a downgrade of Portugal’s credit rating revived concerns about the global economy. Benchmark indexes pulled back from their 18-month highs and the dollar raced to a 10-month high against the euro as investors chose to eschew equities.
Fitch Rating’s downgrade of Portugal’s sovereign credit rating due to the country’s shaky public finances sent investors into a tizzy as concerns grew rising debts in eurozone countries could hamper a nascent global economic recovery.
Treasuries declined in price after an auction of $42 billion 5-year notes witnessed lackluster response. As prices fell, the yield on the benchmark 10-year note jumped to 3.83% from 3.68%. The yield on the five-year note rose to 2.59% from 2.42%. This week the government plans to auction $118 billion of notes.
The Dow Jones industrial average retreated 52.68 points, or 0.5%, to close at 10,836.15. The broader S&P 500 was 0.6%, with telecom, consumer staples and utilities leading the decliners. The tech-heavy Nasdaq lost 0.7%. On the New York Stock Exchange, declining shares beat those that advanced in price by a 2 to 1 margin, as volume jumped to a moderate 1.025 billion shares.
The decline was broad-based yesterday, with twenty-two of the thirty DJIA components closing the day in the red. Verizon (NYSE:VZ) shares led the decliners, off 1.7% after rival telecommunications company Sprint (NYSE:S), up 2.9%, launched the first phone to provide super high speeds; AT&T (NYSE:T) shares retreated 1.1% on increased competition in the sector.
A surging dollar sent prices of commodities priced in the currency lower and weakened resource-related stocks. Alcoa (NYSE:AA) declined 1.2%, while Newmont Mining (NYSE:NEM) and Freeport-McMoRan (NYSE:FCX) fell 3.4% and 1.6%, respectively.
A greater-than-anticipated 7.2 million barrel build in weekly US crude inventory and a stronger dollar sent Chevron (NYSE:CVX) down 1.1% and ExxonMobil (NYSE:XOM) off 0.7%. Oil prices eased 1.6%, or $1.30, to $80.61 per barrel.
Leading the gainers on the DJIA was Bank of America (NYSE:BAC), up 2.6%, after it announced plans to expand its operations in China and Asia and forgive mortgage debt among certain distressed subprime borrowers. Disney (NYSE:DIS) shares advanced 1.1% on news of price increases of movie tickets. General Electric (NYSE:GE) shares added 0.7% to their prior day’s tally after Bernstein increased its price target on the stock, citing improved prospects for near-term credit at its financial unit.
Among the S&P500 industry sectors, only financials (+0.1%) managed gains, even as chances of enactment of Senator Dodd’s financial reform bill grew stronger. Telecommunication shares led the decliners (-1.2%), followed by utilities (-1.0%), consumer goods (-0.9%), health care (-0.9%), industrials (-0.8%), oil and gas (-0.7%), technology (-0.6%), consumer services (-0.5%) and basic materials (-0.2%).
Meanwhile, chances of International Monetary Fund stepping in to save debt-ridden Greece grew stronger, even as EU policy makers meet in Brussels to address economic concerns overshadowed by the Greek and Portuguese problems.
Today’s Fed-speak calendar includes remarks from Fed Chairman Bernanke, as well as its Pianalto and Kohn. Earnings reports are due from Best Buy (NYSE:BBY), ConAgra (NYSE:CAG) with Oracle (NASDAQ:ORCL) numbers coming after the close.
