Stocks declined Tuesday amid concerns about interest rates and a slide in consumer confidence. Merck dragged on the Dow industrials after the FDA rejected a key cholesterol drug.
The Conference Board's consumer-confidence gauge dropped to 62.3, a five-year low,in March from 65.9 in April. However, that was slightly better than the 61-62 range economists had expected.
The Federal Reserve kicked off a two-day meeting today. The market is pricing in about an 80-percent chance of a quarter-point rate cut to 2 percent when the Fed issues its decision on Wednesday, according to fed-funds futures contracts. Some Fed watchers say it will be the last rate cut the Fed makes in this cycle.
"There is going to be a cut," Felix Riley, head of binaries at Choiceodds, told CNBC. "I think the real big thing is the smoke signals coming up from the Fed, once they've announced the expected cut."
"If [the market] gets mixed signals in any way, shape or form, then it will be exciting tomorrow," Riley said.
Crude oildropped below $116 a barrel, after pushing $120 in the previous session, as worries about supply disruptions subsided.
Oil's fall put wind beneath the wings of airline stocks, which rose more than 2 percent. Delta rose more than 10 percent and Northwestwas up nearly 20 percent.
Merck shares plunged more than 10 percent, making it the biggest decliner on the Dow, as several analysts lowered their price targets and earnings estimates for the drug maker after the FDA unexpectedly rejected Merck's Cordaptive, saying it needs more information on the drug. Cordaptive is seen as a key to Merck's cholesterol franchise.
Bank and homebuilder shares declined after a pair of dismal reports. The Dow Jones home-construction index fell more than 3 percent, while the S&P financial index was down nearly 1 percent.
U.S. home prices extended their slumpin February, with 17 of the 20 measured regions posting record annual declines, according to a report from Standard & Poor's/Case Shiller. A separate report showed home foreclosure filings jumped 23 percent in the first quarter from the prior quarter and more than doubled from a year earlier, according to real-estate tracker RealtyTrac.
On the earnings front, U.S. credit-card companies posted strong results as consumers increasingly pay with plastic instead of cash and checks.
MasterCard shares shot up after the Purchase, NY, company said its first-quarter earnings more than doubled, surpassing expectations, helped by the weak dollar and an increase in the number of cards outstanding.
Rival Visa also blew past forecasts with its earnings, the San Francisco company's first as a public company, reported after the bell Monday.
Food and ethanol producer Archer Daniels Midland beat analyst expectations with a profit of 80 cents per share against analyst predictions of 70 cents per share, up from 51 cents a year earlier.
Shares of Genentech and Biogen skidded after the biotech companies said studies showed their drug Rituxan didn't meet its primary goal of helping patients with lupus.
IBM announced it was raising its dividend by 25 percentto 50 cents a share, marking the 13th straight year that IBM, the world's largest computer-services company, has increased its payout to shareholders. Just two weeks earlier, IBM reported better-than-expected earnings and raised its 2008 outlook.
Wal-Mart shares ticked higher after the discount retailer said it would cash tax-rebate checks for freewith no purchase required. Checks began arriving this week, earlier than had been expected.
And in the financial sector, Deutsche Bank reported its first quarterly loss in five years.
TUESDAY: Fed meeting begins; earnings from GM and US Steel
WEDNESDAY: Fed rate decision (2:15 p.m. ET); first read on Q1 GDP; mortgage applications; Chicago PMI; weekly crude inventories; earnings from GM, Kraft, Kellogg, P&G, Time Warner, Prudential and Starbucks
THURSDAY: Monthly auto sales; jobless claims; personal income and spending; ISM manufacturing index; construction spending; earnings from Kodak, ExxonMobil
FRIDAY: April jobs report; factory orders; earnings from Chevron, Viacom
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