Stocks Resume Their Slide
The stock market resumed its October slide Tuesday as an inflation report rekindled concerns over how high the Federal Reserve might raise short-term interest rates.
A sharp sell-off in energy stocks also helped to drag the market down.
But long-term Treasury bond yields eased after rising for five straight sessions.
On Wall Street, the blue-chip Standard & Poor’s 500 index posted its ninth loss in 12 sessions, falling 11.96 points, or 1%, to 1,178.14.
The Dow Jones industrial average lost 62.84 points, or 0.6%, to 10,285.26, and the technology-dominated Nasdaq composite fell 14.30 points, or 0.7%, to 2,056.00.
The market was under pressure after the government reported that wholesale prices shot up 1.9% in September, the most in 15 years, as energy costs hit records after the Gulf Coast hurricanes.
Excluding food and energy prices, the so-called core wholesale price index was up 0.3%, which was worse than the 0.2% many analysts had expected.
Fed officials have made clear in recent weeks that they intend to continue tightening credit to damp inflation pressures. The central bank’s key short-term rate now is 3.75%, and policymakers meet again Nov. 1.
“The fear in the marketplace is that the Fed is going to be seduced by this inflation data into raising rates too high,” said Hugh Johnson, chairman of brokerage Johnson Illington Advisors. “And while [corporate] earnings are good right now, earnings won’t be good in 2006 if rates go too high.”
Market bulls had hoped that, with third-quarter profit reports rolling out this week, investors would be more focused on those numbers than on inflation concerns.
But earnings so far haven’t been able to stoke a significant rally in the equity market.
“It’s not that people are saying, ‘get me out of this market,’ but there’s enough head winds out there that makes it tough to say, ‘I want to own this market,’ ” said Jay Suskind, head trader at Ryan Beck & Co.
Falling stocks outnumbered winners by more than 2 to 1 on the New York Stock Exchange and on Nasdaq.
Blue-chip indexes had hit five-month lows last week before rebounding modestly Friday and Monday.
Inflation issues are worrying investors even though energy prices have pulled back from their September highs.
The bond market, by contrast, took the wholesale prices report calmly. The bellwether 10-year Treasury note yield ended at 4.47%, down from 4.50% on Monday, which was a six-month high. The yield has soared from 4.03% on Sept. 1.
For already nervous bond investors, “There isn’t much new information here,” Joseph Shatz, a bond strategist at Merrill Lynch & Co., said of the latest inflation report.
Among the day’s market highlights:
* Third-quarter earnings reports lifted IBM 89 cents to $83.48 and 3M $2.24 to $74.71. 3M beat Wall Street forecasts by 4 cents a share in the quarter and raised its outlook for the full year, saying it expected productivity gains to help offset energy cost pressures.
But United Technologies slid $1.16 to $49.95 despite reporting profit up 18% from a year earlier. Some analysts expressed concern about a drop-off in demand for the firm’s aircraft parts.
* In the tech sector, Novellus Systems sank $3.06 to $21.83. The maker of semiconductor manufacturing equipment forecast a fourth-quarter profit, excluding some costs, of 15 cents to 17 cents a share. Analysts expected 24 cents, on average.
* Energy stocks were broadly lower, continuing their sell-off of recent weeks. Losers included EOG Resources, down $4.37 to $64.44; ENI, down $5.78 to $131.92; and Valero Energy, down $3.62 to $99.87.
* The energy sector’s losses helped pull other commodity stocks lower. Among mining firms, Phelps Dodge slid $5.47 to $119.96, Mechel Steel gave up $2.34 to $28.14 and Buenaventura dropped $1.45 to $29.46.
* Home builders were broadly lower. KB Home fell $2.09 to $62.34 and Lennar dropped $2.07 to $53.85. Calabasas-based Ryland fell $1.06 to $64.38 in regular trading, but edged up to $65 after hours after its report that quarterly earnings rose 42%. Ryland also doubled its quarterly dividend, from 6 cents to 12 cents a share.
* Ford Motor lost 19 cents to $8.47 and General Motors sank 97 cents to $29.12 after a Merrill Lynch analyst cut both stocks to “sell” from “neutral.”
* In foreign trading, Canada’s main market index fell 2%, hurt by a plunge in energy stocks and by the Bank of Canada’s decision to raise its key short-term interest rate to 3% from 2.75%, the second such increase in six weeks.
Brazil’s main market index tumbled 3.9% on concerns about U.S. inflation and interest rates.
