Inflation Fears Drive Stocks Lower, Yields Up
Uncertainty gripped Wall Street yet again Thursday as investors, forsaking an early advance, gave in to inflation fears and sent stocks generally lower and bond yields higher.
Among major indexes, only the tech-focused Nasdaq composite posted a marginal gain.
Oil set a record close at $41.08 a barrel in New York trading, deepening worries that high energy costs could derail corporate profits and consumer spending.
The stock market, already alarmed at the prospect of a Federal Reserve credit-tightening move next month, fretted anew as the government reported a higher-than-expected increase in wholesale prices in April.
That sparked fears that the Fed might raise its benchmark short-term rate by more than the quarter percentage point Wall Street had been expecting.
A late-morning rally suggested the stock market was pushing the inflation news aside, but pessimistic investors quickly took advantage of the rise to lock in what gains they could.
“Technically, the market doesn’t look all that great,” said Todd Leone, managing director of equity trading at SG Cowen Securities. “I think we’ll be in a lower range for a while. We might see a rally when the Fed finally raises rates, actually.”
The Dow Jones industrial average lost 34.42 points, or 0.3%, to 10,010.74, after inching up in the two previous sessions.
The Standard & Poor’s 500 index eased 0.84 point, or 0.1%, to 1,096.44, while Nasdaq was up 0.44 point, or 0.02%, to 1,926.03.
Declining issues outnumbered advancers by 17 to 15 on the New York Stock Exchange.
The Labor Department said wholesale prices climbed 0.7% in April, the largest increase in a year, spurred on by higher dairy and gasoline prices.
A drop in retail sales in April, as reported by the Commerce Department, was no help to the markets as it showed a weakening of consumer demand. Sales fell 0.5%, bogged down by lagging auto sales. Analysts had expected a 0.1% rise in sales.
“All that data added up to a mixed bag,” said Bryan Piskorowski of Wachovia Securities.
“Markets prefer predictability to uncertainty. Right now, the degree of uncertainty has risen, and it’s risen faster than we expected,” said Jack Caffrey, equities strategist at J.P. Morgan Private Bank.
“Investors are being legitimately more careful than they were months ago. They should still be looking at equities, but they’re obviously doing so more carefully,” he said.
In the final leg of the government’s three-part auction of $54 billion in new securities, new 10-year Treasury notes were sold at a yield of nearly 4.85% after drawing bids for 2.78 times the amount offered.
That was much better than February’s 2.00 bid level and the 1.83 average of last year’s auctions. Yet the bond market sagged, weighed down by inflation concerns, traders said.
The existing 10-year T-note yield rose to 4.85%, up from 4.81% on Wednesday and the highest in 22 months. The two-year T-note yield ended at 2.65%, up from 2.59% and also the highest since July 2002.
Despite the inflation news, gold lost more ground. Near-term futures in New York dropped $2.60 to $374.80 an ounce, the lowest since October.
Gold often has served as an inflation hedge, but the metal has tumbled from a multiyear high of $428.80 reached on April 1. Traders said the strengthening dollar -- which rose again Thursday -- is providing tough competition for gold.
Among Thursday’s market highlights:
* Walt Disney climbed after its report that quarterly profit jumped 71%. Disney shares gained 30 cents to $23.30, the highest since April 29. Cable TV giant Comcast, which dropped its unsolicited bid for Disney on April 28, fell 34 cents to $27.93, a 52-week low.
* Internet search engine Mamma.com soared $2.78 to $13.21 after the company reported a first-quarter profit.
* Panera Bread led restaurant stocks lower after the company warned that rising prices for dairy products would hurt earnings in the current quarter. Panera shares slid $4.42 to $33.45, Cheesecake Factory lost $2.31 to $40.09 and P.F. Chang’s dropped $1.61 to $44.30.
* NuVasive rose 40 cents to $11.40 on its first day of trading on Nasdaq. The San Diego-based company makes products for the surgical treatment of spine disorders. NuVasive sold 6.5 million shares at $11 on Wednesday.
Market Roundup, C5
