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Worries about the interest rate outlook, sparked by unexpectedly brisk data, overshadowed a drop in crude-oil prices and solid earnings releases from AT&T, Yum Brands and JetBlue Airways. Blue-chip stocks slumped as investors opted to step back after the recent market rally.

Today, the Dow Jones industrial average closed down 53.07 or 0.5% to 11,283.25, the broader Standard & Poor’s 500 index closed down 6.37 or 0.5% to 1,301.74, and the Nasdaq composite index closed down 3.08 or 0.1% to 2,330.30
Market breadth was negative. On the New York Stock Exchange, losers beat winners by five to three on volume of 1.68 billion shares. On the Nasdaq, decliners topped advancers by 15 to 14 on volume of 2.36 billion shares.

Released data shows that consumer confidence and housing starts were stronger than expected. Sales of existing homes rose unexpectedly in March by 0.3% to a seasonally adjusted annual rate of 6.92 million, against the expected fall to 6.7 million. Treasury prices slipped, pushing the yield on the 10-year note back above 5%. Investors are worried that interest rates will go even higher than expected. However, it is opined that earnings will trump interest rates.

President Bush in a speech about energy, announced a probe of gas gouging and a halt to deliveries to the Strategic Petroleum Reserve, so as to make more supplies available for consumers. This failed to stir the bulls and caused a sell-off in oil stocks such as Exxon Mobil that closed down $0.46 to $63.95, and Valero Energy that closed down $2.80 to $66.30.

Shares in AT&T Inc. rose 7 cents to $25.60 after the company, formerly known as SBC Communications, posted a 37% increase in first-quarter profit, helped by merger-related savings and strong growth in wireless and broadband services.

Sun Microsystems Inc. closed up $0.01 or 1% to $4.99 after the computer-hardware giant said the CEO Scott McNealy resigned and named Jonathan Schwartzas its new CEO. Though McNealy will stay on as the Chairman. The company also reported a wider fiscal third-quarter loss. Shares of Netflix Inc. pared sharp early gains to close up just 9 cents at $31.15 after the firm swung to a first-quarter profit on a 47% increase in subscriber revenue. The company lifted its 2006 revenue estimate and its year-end subscriber forecast. Shares in JetBlue Airways Corp. climbed 11.8% to $10.50 after the discount airline posted a narrower-than-expected loss and said it would cut costs to bring it back to profitability.

Shares in Yum Brands Inc. rose 3.5 % to $51.34 after an 11% gain in first-quarter profit, helped by a growth in the U.S. and a recovery in China. The operator of KFC, Pizza Hut and Taco Bell restaurants also boosted its forecast for the year. The move prompted brokers Piper Jaffray and CIBC World Markets to upgrade the company.

U.S. light crude oil for June delivery fell 45 cents to close at $72.88 a barrel on the New York Mercantile Exchange. Iran, however, remains a concern after a senior official said the country will break all contacts with the United Nations nuclear watchdog if the Security Council opts to impose trade sanctions.

All the best,
Manuel Jesus-Backus
The Portfolio Crafter