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Stocks ended sharply ahead of the Federal Reserve’s highly anticipated two-day policy meeting. The technology sector bore the brunt of investor jitters over interest rates. Additionally, a sharp sell-off in shares of General Motors Corp. and DuPont contributed to the biggest one-day point drop in three weeks for the Dow Jones Industrial Average.

Today, the Dow Jones Industrial average closed down 120.54 or 1.1% to 10,924.74, the broader Standard & Poor’s 500 closed down 11.36 or 0.9% to 1,239.20, and the tech-heavy Nasdaq composite closed down 33.42 or 1.6% to 2,100.25.

Market breadth was negative. On the New York Stock Exchange, losers topped winners by a margin of eight to three on volume of 1.55 billion shares. On the Nasdaq, decliners beat advancers by a margin of three to one as 1.82 billion shares changed hands.

Ongoing worries that the Federal Reserve is about to raise interest rates too high and make a very serious mistake, killing off the economy and earnings is something that’s bothering all investors. The Feds appear fixated on combating inflation by raising rates and are somewhat indifferent to indications of economic slowing. Some investors think that the increase may be as high as half percentage - however, this appears unlikely. While a quarter-percentage point increase is inevitable, investors will be scouring the central bank’s policy statement for clues to how much further rates may rise.

On the data front, resale of U.S. homes fell 1.2% in May to a seasonally adjusted annual rate of 6.67 million, against a bigger decline, to 6.64 million. While sales didn’t slow as much as expected, the report pointed to overall cooling in the housing sector. U.S. consumer confidence, meanwhile, rose to 105.7 in June from a revised 104.7 in May. This is against an expected dip to 103.1. These reports rattled investors already nervous the Fed will say there’s reason to remain concerned about inflation and vigilant about interest rates.

General Motors stock closed down $1.85 or 6.7% to $25.90, after stating that 35,000 union workers would take buyouts or early retirement, allowing the company to raise its cutting target by $1 billion annually to $8 billion. However, recent price actions by Chrysler, sizable share loss at GM and significant excess capacity all highlight that GM fundamentals remain under severe pressure. GM’s Group Vice President Mark LaNeve said the company is faced with brutal year-over-year sales comparisons this summer, after turning in record results last year on the back of its wildly successful employee discount program.

Shares of DuPont closed down $1.16 or 2.8% to $40.88 after French conglomerate Vivendi sold its 16.4 million shares (1.8% of the company) of the chemicals giant for $671 million, or $40.82 a share. The sale was expected after Vivendi said earlier in the month that it had resolved a dispute with the U.S. Internal Revenue Service over a 1995 sale of DuPont shares.

Univision Communications Inc. closed up $1.97 or 6.2% at $34, after it agreed to be bought by a group of private equity firms and media mogul Haim Saban for $13.7 billion. The firms include Saban Capital Group, Madison Dearborn Partners, Providence Equity Partners, Texas Pacific Group and Thomas H. Lee Partners. Grupo Televisa S.A., which has been in the running for Univision has lost the race.

In another merger, Barr Pharmaceuticals Inc. agreed to buy Croatian drug manufacturer Pliva for $2.2 billion, edging out a competitive bid from Iceland’s Actavis. Barr shares were off 1.7% at $47.93.

Stock of Intel closed down $0.23 to $18.05, after it stated that it would sell its phone chip unit to Marvell Technology Group. for $600 million in cash as it looks to focus on chips for personal computers and servers amid stiffer competition. Shares of Marvell closed down $7.76 or 15% to $44.14.

U.S. light crude oil for August delivery rose 12 cents to settle at $71.92 a barrel on the New York Mercantile Exchange. Traders have concerns linked to production setbacks in Louisiana and threats from Iran that it will use oil as a weapon in its battle with the United States and the European Union over its nuclear enrichment program.

All the best,
Manuel Jesus-Backus
The Portfolio Crafter