Fed's inflation talk stretches stocks' losing streak
Major indexes turn negative after rallying early in the session. Fed official's remarks, Macy's woes overshadow upbeat productivity report.
NEW YORK (CNNMoney.com) -- Stocks closed lower Wednesday, after a modest rally early in the session, as investors grappled with discouraging remarks by a Fed official and worrisome news from Macy's.
The Nasdaq (COMP) composite lost nearly 0.2%. The tech-laden index is now down 20.3% from the cyclical peak it hit last October, officially putting it into "bear market" territory.
Bond prices edged higher after falling earlier in the session. The dollar was up against the euro but fell against the yen. Oil prices slipped.
Speaking before the Birmingham Rotary Club, Federal Reserve Bank of Philadelphia President Charles Plosser emphasized the importance of keeping inflation in check, causing some investors to worry that the central bank may curtail its rate cutting campaign.
"With inflation creeping up, we have to be particularly alert for rising inflation expectations. It is important that inflation expectations remain stable," said Plosser, a voting member of the Federal Open Market Committee.
The mood on Wall Street was cautiously optimistic before Plosser's remarks. Major indexes had rallied earlier in the session after the Labor department said worker productivity was stronger than expected in the fourth quarter. The news helped counter some of the recession fears that have plagued Wall Street since last year.
Peter Cardillo, chief market economist at Avalon Partners, said Plosser's comments were "not encouraging," and were causing the market to pull back. Cardillo added that the mood on Wall Street was largely negative and that markets will continue to be unstable as long as sentiment remains low.
"The market is on shaky ground. Overall market psychology remains negative, until we see a reversal in market psychology, we'll see more volatility," he said.
After the closing bell, network equipment maker Cisco Systems reported earnings that met Wall Street expectations but warned of slower growth going forward.
Earnings add some upside. The media sector helped provide some relief from the recession woes that have plagued markets since last year.
Shares of media conglomerate Time Warner (TWX, Fortune 500), the parent company of CNNMoney.com, rose nearly 2% after the company reported earnings that met Wall Street estimates. CEO Jeff Bewkes confirmed that the company is looking at shedding some of its AOL and Time Warner Cable assets.
Telecom equipment maker JDS Uniphase (JDSU) also reported earnings that beat estimates late Tuesday. Shares of JDS moved more than 25% higher.
From the energy sector, the government reported a big increase in crude inventories, driving oil prices down more than $1 per barrel in New York.
That helped airline stocks gain ground Wednesday with the Amex Airline index climbing 5% in the afternoon.
Market breath was negative. On the Dow, losers topped winners by roughly two to one on a volume of 1.54 billion shares. On the Nasdaq, decliners beat advancers on a volume of 2.42 billion shares.
Other markets. Treasury prices rose, lifting the yield on the benchmark 10-year note to 3.6% from 3.58% late Tuesday. Bond prices and yields move in opposite directions.
In currency trading, the dollar gained versus the euro and slipped versus the yen.
U.S. light crude oil for March delivery fell $1.27 to $87.14 a barrel on the New York Mercantile Exchange.
COMEX gold for April delivery surged $14.80 to $900.70 an ounce.