Federal Reserve Chairman Alan Greenspan’s colleagues did the heavy lifting Tuesday, pouring cold water on what they see as an overheated economy and dousing any chance of a stock market rally.
Stocks closed mostly lower after three presidents of Federal Reserve banks issued downbeat comments about inflation and signaled higher interest rates ahead. Investors also were wary about key economic reports this week on the gross domestic product and the employment-cost index for the third quarter.
The Dow Jones industrial average lost 47.80 points, to 10,302.13, on New York Stock Exchange floor volume of 869 million shares.
Much of the 30-member Dow’s drop was accounted for by declines in the four components that Dow Jones & Co. announced are to be stricken from the index after Friday: Sears Roebuck, Chevron, Goodyear Tire & Rubber and Union Carbide.
Chevron fell $2, to $88; Goodyear fell $3.94, to $41.25; Sears dropped $1.87, to $27; and Union Carbide slipped 50 cents, to $59.
Their replacements initially rose sharply on the news. But just as interest-rate worries punctured the market’s optimism about earnings, they also cut into the four stocks’ gains. Intel edged up 19 cents, to $71.44, and SBC Communications climbed $1.31, to $45.56, but Microsoft slipped 6 cents, to $92.37, and Home Depot fell $1.25, to $70.69.
Among broader indicators, the Standard & Poor’s 500 index fell 11.72, to 1281.91, as losing stocks outnumbered winners on the NYSE by more than a 3-2 ratio.
The Nasdaq composite index slipped 4.48, to 2811.47; the Russell 2000 index of small-company stocks lost 1.97, to 415.79.
Bond prices slipped in the wake of the speeches by Fed officials. The yield on the 30-year Treasury bond rose to 6.37 percent from 6.35 percent late Monday.
Alfred Broaddus, president of the Federal Reserve Bank of Richmond, Va., said the current robust pace of U.S. economic growth was unsustainable: “Inflation is a material risk in the outlook that needs to be taken seriously.”
Then, San Francisco Fed President Robert Parry said, “We face the risk of building inflationary pressures” amid strong domestic spending and a pickup of growth abroad.
Later, St. Louis Fed President William Poole cautioned against “wishful thinking” on how much more productivity gains by workers can contribute to U.S. economic growth.
Those afternoon remarks offset what were perceived to be market-friendly comments in the morning from Minneapolis Fed President Gary Stern, who said that productivity gains would more than likely last.
A Conference Board report of a drop in consumer confidence during October, perceived as easing inflationary pressures, helped the stock market only briefly.
While the market initially was cheered by Lucent Technologies’ earnings, stocks were unable to sustain their gains. But Lucent, with third-quarter profits having surged 50 percent, ended the day up $3, at $62.87.
Another technology gainer was IBM, which rose $1.62, to $95.50, after directors voted to spend up to $3.5 billion to buy back company stock. The stock plunged last week on concern about its earnings outlook.
Overseas, Japan’s Nikkei stock average edged up 0.1 percent. In Europe, Germany’s DAX index closed up 1.28 percent, Britain’s FT-SE 100 fell 1.38 percent and France’s CAC-40 closed up 0.8 percent.
