FINANCIAL MARKETS : Stocks Fall as Wholesale Prices Jump
Stocks closed lower Tuesday as a jump in wholesale prices in November revived inflation fears.
The Dow Jones industrial average fell 9.40 to 5,174.92. Broad-market indexes also fell.
“The Dow has been up over 450 points in the last six weeks,” said Alfred E. Goldman, vice president at A.G. Edwards & Sons Inc. in St. Louis. “It came a long way in a short time and now we are seeing a little correction. It’s a pause to refresh.”
The day’s major economic news was from the Labor Department, which reported that wholesale prices shot up 0.5% in November as food and motor-vehicle costs soared. Economists had generally expected a 0.2% rise. Although the news sent bond yields higher in early trading, most ended the day little changed. The Treasury’s main 30-year bond yield edged up to 6.05% from 6.04% late Monday.
A barrage of weak economic reports in recent months led many investors to believe the Federal Reserve would lower interest rates when its policy-making committee meets Dec. 19. Tuesday’s news makes that somewhat less likely. While lower rates would spur economic growth, they could also aggravate inflationary pressures.
Stocks remained in a narrow trading range for most of the day. The inflation “numbers at first gave the market the jitters,” said Arthur Hogan, head of equity trading at Dean Witter, Discover & Co. in New York. “Then people started looking at the facts and figures behind the numbers and it didn’t seem as bad.
Meanwhile, wheat prices dropped Tuesday on forecasts for rain and snow in key growing areas that have been hit by more than two months of drought.
The wheat market largely shrugged off a Department of Agriculture report reemphasizing the decline of world supplies that recently has pushed prices to 15-year highs.
Soft red winter wheat for December delivery closed 4 1/2 cents lower at $5.14 per bushel, and March futures ended 3 cents off at $5.06 1/2 on the Chicago Board of Trade
Among Tuesday’s market highlights:
* Shares of semiconductor and computer-related companies dropped after a report showed new computer chip orders in November fell to $114 for every $100 worth shipped, down from $118 in October. But the ratio had been expected to decline as inventories increased before the holiday. LSI Logic Corp. fell 2 3/8 to 34, Texas Instruments Inc. dropped 1 3/4 to 54 1/2, Analog Devices declined 2 to 33 1/2, Micron Technology Inc. fell 1 1/2 to 53 1/4, Novellus Systems Inc. dropped 2 to 57 1/2 and International Rectifier Corp. fell 1 1/4 to 46 5/8.
* Paper and forest product stocks tumbled after Georgia-Pacific, the nation’s largest maker of building materials, warned that fourth-quarter profit won’t live up to analysts’ forecasts. The company blamed soft prices and weak demand for pulp and container board. Merrill Lynch & Co. downgraded investment opinions on 11 paper stocks the previous day. Georgia-Pacific slid 3 to 66, Champion International skidded 2 to 40 7/8, Willamette Industries dropped 1 1/4 to 55 3/4 and Boise Cascade dropped 1 3/8 to 32 7/8.
* Chemical stocks weakened in response to reports of lower methanol and polyvinylchloride prices. Borden Chemical and Plastics slid 2 to 13 1/8, Dow Chemical Co. dropped 7/8 to 70, Union Carbide fell 1 1/8 to 37 5/8, Georgia Gulf Co. fell 1 1/4 to 34 1/8 and Lyondell Petrochemical Co. dropped 7/8 to 24.
“Most of the commodity chemical earnings estimates for next year are just way too high,” said Jeffrey Spetalnick, analyst at Oppenheimer & Co.
* Boeing Co. rose 1 1/2 to 74 3/8 after the company and its biggest union reached a tentative pact on a four-year contract that may end a two-month strike.
* MetaTools, a designer of computer graphic software tools, surged 11 to 29 in its first day of trading.
In overseas trading, the Nikkei index in Tokyo rose 0.4%, the Frankfurt’s DAX index was up 0.7% and the FTSE-100 in London gained 0.1%.
