Stocks Tumble as Oil Prices Rise, Fed Signals End to Rate Cuts
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American stocks tumbled, sending the Standard & Poor’s 500 Index to its biggest two-day drop since March, as the Federal Reserve signaled it is done cutting interest rates and record oil prices threatened to reduce profits at consumer companies.
Citigroup Inc., Bank of America Corp., and JPMorgan Chase & Co. sent financial shares to their lowest since April 15. Target Corp. led retailers to their worst decline in a month and an index of airlines slid to an all-time low as crude climbed above $133 a barrel. Moody’s Corp. slumped the most since 1999 after the credit ratings company said it is investigating whether it mistakenly assigned Aaa ratings to debt securities that later fell in value.
The S&P 500 lost 22.69 points, or 1.6%, to 1,390.71. The Dow Jones Industrial Average slid 227.49, or 1.8%, to 12,601.19. The Nasdaq Composite Index fell 43.99, or 1.8%, to 2,448.27. Four stocks retreated for every one that rose on the New York Stock Exchange.
“The American market is a bottomless pit right now,” the president of Darien, Conn.-based brokerage Euro Pacific Capital, which has more than $1 billion in customer accounts, Peter Schiff, said. “The Fed can’t cut rates any more. Oil is $132 a barrel and rising. Any company that collects revenues from American consumers is going to have terrible earnings, and share prices are going to fall.”
All 10 industries in the S&P 500 slid after the minutes from the Fed’s April meeting suggested record energy costs and rising public expectations for inflation threatened their ability to continue cutting rates. Policymakers also reduced their projections for economic growth this year by almost a full percentage point and raised their forecasts for inflation amid curtailed bank lending and a record rise in the prices for oil.
“Most members viewed the decision to reduce interest rates at this meeting as a close call,” the minutes said. “Several members noted that it was unlikely to be appropriate to ease policy in response to information suggesting that the economy was slowing further or even contracting slightly in the near term.” The S&P 500’s 2.5% drop over the past two days was the benchmark’s biggest decline since the Federal Reserve brokered JPMorgan Chase & Co.’s buyout of Bear Stearns Cos. in March.
