Stocks Fall, as Do Oil and the Dollar
Stocks ended broadly lower, bond yields ticked up and the dollar fell against most major currencies Tuesday after the government reported a surprising surge in wholesale inflation.
But crude oil prices, a key factor in the pickup in inflation, fell for a fourth straight session before today’s release of weekly U.S. inventory data.
The wholesale inflation report made it more likely that the Federal Reserve would raise its benchmark short-term interest rate for the fifth time this year when policymakers meet Dec. 14, some analysts said.
“Those that think the Fed might not be tightening in December will get a rude awakening with the inflation numbers,” Michael Strauss, who helps manage more than $30 billion at Commonfund in Wilton, Conn., told Bloomberg News.
The blue-chip Standard & Poor’s 500 index, which hit a three-year high Friday after rallying sharply in recent weeks, sank 8.38 points, or 0.7%, to 1,175.43.
The decline was modest, but it was the index’s biggest setback since Oct. 22.
The Dow Jones industrial average slid 62.59 points, or 0.6%, to 10,487.65. The Nasdaq composite index dropped 15.47 points, or 0.7%, to 2,078.62.
Falling stocks outnumbered winners by more than 3 to 2 on the New York Stock Exchange and Nasdaq, though trading volume was below recent peaks.
The stock market’s rebound since mid-October had been fueled partly by hopes that the Fed might soon pause its credit-tightening campaign. Higher inflation, however, could force the Fed’s hand in raising rates to damp price pressures.
Bond investors also reacted with concern after the government said its index of wholesale prices jumped 1.7% in October, well above expectations.
Still, selling in the bond market was muted. The yield on the 10-year Treasury note rose to 4.21% from 4.19% on Monday. Yields rise as bond prices fall.
Bonds may have been supported by a Treasury Department report showing that foreign investors purchased a net $19.2 billion of U.S. government debt in September, up from $14.6 billion in August.
Total net foreign purchases of U.S. bonds and stocks amounted to $63.4 billion in September, an increase from an upwardly revised $59.9 billion in August, the Treasury Department said.
The data allayed concerns that foreign investors might turn away from U.S. assets as the dollar’s value slides.
The dollar continued to lose ground Tuesday against the euro, the Canadian dollar and the Swiss franc, among other key currencies. The euro ended at $1.296 in New York, up from $1.294 on Monday.
Gold futures in New York rose $3.20 to a 16-year high of $440.20 an ounce.
In other commodities trading, near-term crude oil futures slumped 76 cents to $46.11 a barrel in New York, a two-month low. Oil is down 16% since topping $55 a barrel in late October.
Rising U.S. inventories have depressed crude prices. Oil could fall further if inventory data due today show another jump in supplies, analysts said.
Among Tuesday’s market highlights:
* Retail stocks were mostly lower despite upbeat profit reports from a number of major companies. Wal-Mart lost 81 cents to $56.89, Sears fell $1.10 to $45.20 and Target was down 97 cents to $51.46.
* Home builders pulled back on concerns about interest rates. KB Home lost $1.38 to $88.95 and Standard Pacific fell $1.54 to $57.75.
* Fannie Mae, the biggest source of U.S. mortgage money, closed down 80 cents to $69.40 after falling as low as $67.45. The company, which is facing a probe of its accounting, said late Monday that it might have to post a $9-billion retroactive loss if it was forced to revise certain accounting techniques.
* Charter Communications tumbled 55 cents, or 20%, to $2.16. The cable TV operator said it planned to register with the Securities and Exchange Commission as many as 150 million Class A shares of stock to be sold in a public offering. The company also plans to raise $750 million through convertible notes.
* On the plus side, Fidelity National Financial, the biggest title insurance firm, jumped $3.32 to $42.28 on takeover rumors.
* Gold mining stocks rallied with the metal’s price. Barrick Gold gained 44 cents to $23.35 and Glamis Gold rose 58 cents to $21.43.
