Wall Street drops as rate angst spurs profit-taking
U.S. stocks fell in a broad late-day drop on Wednesday after a top Federal Reserve official said interest rates should not stay low for much longer, giving investors an excuse to take profits.
A speech by Kansas City Federal Reserve Bank President Thomas Hoenig drove afternoon selling after he said keeping interest rates too low for too long would encourage risky financial behavior.
Energy stocks led the declines, with the S&P energy index <.GSPE> falling 1 percent, and Dow component Exxon Mobil
The Federal Reserve's near-zero interest-rate policy has underpinned a rally of almost 75 percent since the March 9, 2009, low, and the removal of easy money is one of the market's biggest fears. Hoenig, however, was the sole dissenter at the most recent Fed meeting, advocating higher rates.
It looks like what the market is latching onto is Thomas Hoenig -- the lone dissenter of the idea of not raising rates -- had some very strong comments, said Scott Marcouiller, senior equity market strategist at Wells Fargo Advisors in St. Louis.
The real reason is it's a short-term extended market that's vulnerable to short-term pullbacks and this is what it's using as the excuse.
The Dow Jones industrial average <.DJI> fell 72.47 points, or 0.66 percent, to 10,897.52. The Standard & Poor's 500 Index <.SPX> slipped 6.99 points, or 0.59 percent, to 1,182.45. The Nasdaq Composite Index <.IXIC> lost 5.65 points, or 0.23 percent, to 2,431.16.
In contrast, Federal Reserve Chairman Ben Bernanke said the U.S. economy still faces significant headwinds, suggesting he was in no rush to raise interest rates.
The CBOE Volatility Index <.VIX>, Wall Street's fear gauge, gained 2.4 percent after closing on Tuesday at a two-and-a-half-year low. Despite the gain, the VIX remains at low levels, suggesting a complacency among investors.
Data from the Investment Company Institute showed domestic equity funds had outflows of $64 million for the week ending March 31, the second consecutive week of outflows. Domestic equity funds have experienced outflows in six of the last eight months, suggesting investors remain cautious.
The KBW index of bank stocks <.BKX> slipped 0.4 percent, with JP Morgan Chase & Co
Monsanto Co
Shares of Palm Inc
saw the biggest volume on the Nasdaq, with 83.1 million shares changing hands. The stock spiked 20 percent to $4.62 on speculation the smartphone maker may be an acquisition target.
Stocks gained some ground in the early afternoon after strong demand at a $21 billion Treasury auction of 10-year notes, but the momentum was short-lived.
Markets still face a $13 billion 30-year bond sale Thursday, which may prove a bigger hurdle.
Worries about Greece's debt load created a negative overhang early on after the government said the country's banks had asked for billions of euros in support and euro-zone states argued over the conditions of potential bailout loans.
About 9.63 billion shares traded on the New York Stock Exchange, the American Stock Exchange and Nasdaq, in line with last year's estimated daily average of 9.65 billion.
Declining stocks outnumbered advancing ones on the NYSE by a ratio of about 2 to 1, while on the Nasdaq, nearly five stocks fell for every four that rose.
(Reporting by Leah Schnurr; Editing by Jan Paschal)
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