Price Data Slam Stocks, Commodities

Wall Street got exactly what it didn’t want Tuesday: more evidence of rising inflation pressures.

The result was another broad stock sell-off and, ironically, a plunge in many commodities that have been fueling inflation worries. Gold dived more than 7%, its biggest decline in 15 years. Oil fell below $70 a barrel for the first time in three weeks.

U.S. stocks resumed their spring slump after the government said its index of wholesale prices, excluding food and energy, rose 0.3% in May. That exceeded the 0.2% that analysts expected.

The report added to fears that the Federal Reserve will continue raising short-term interest rates to slow the economy and quash inflation.

In another volatile trading session, the Dow Jones industrial average ended down 86.44 points, or 0.8%, at 10,706.14 for its seventh loss in eight sessions. The slide put the blue-chip Dow 0.1% into the red for the year.

Most broader U.S. indexes fell more sharply than the Dow. The technology-centered Nasdaq composite slid 18.85 points, or 0.9%, to 2,072.47, its eighth straight drop.

Foreign markets again suffered even steeper declines. Japan’s Nikkei-225 index sank 4.1%, its biggest one-day loss in two years.

Although many analysts say markets are nearing bottom, sellers keep swarming.

Until mid-May, the prevailing bet on Wall Street and in stock markets worldwide was that the Fed was near the end of its two-year-long credit-tightening campaign.

That fed optimism about the global economic expansion. And the hottest market sectors this year had been those whose fortunes largely depend on a strong growth cycle -- commodity-related industries such as mining, for example.

Now, “the cyclical bet is coming out of the market,” said Subodh Kumar, investment strategist at brokerage CIBC World Markets in New York.

The major worry is that the Fed, and other central banks, will go too far and risk tilting the global economy into recession, analysts say.

Many economists say those concerns are exaggerated, but that hasn’t stopped a wave of selling in stock markets worldwide over the last five weeks.

Prices of many commodities also have slumped since mid-May, and that sell-off accelerated Tuesday. A weaker economy could slash demand for raw materials.

In part, the severity of the recent declines in stocks and commodities reflects that some investors used borrowed money to buy into the markets as they surged over the last few years, analysts say.

As asset values slide, investors who bought on credit may face calls by their lenders to put up more collateral for their loans. That can trigger a cascade of selling by investors desperate to raise cash.

“What you see is a rush to raise liquidity by everybody in the system,” said Michael Metz, investment strategist at Oppenheimer Holdings in New York.

Gold was a big target of sellers Tuesday. Near-term futures in New York plunged $44.30 to $562.50 an ounce. The 7.3% drop was the largest since Jan. 17, 1991, according to Bloomberg News.

Gold has fallen $157.30, or 22%, since reaching a 25-year closing high of $719.80 on May 11.

Prices of copper, platinum, silver and other metals also tumbled Tuesday. Oil pulled back, too, with near-term futures in New York sliding $1.80 to $68.56 a barrel, the lowest since May 19.

Because surging prices for oil and other commodities have been key factors in stoking inflation pressures this year, stock investors might have expected that falling commodities would be welcomed on Wall Street. Instead, lower raw materials prices are feeding fears of a sharp slowdown in global growth.

Countries that rely heavily on exports of raw materials saw their stock markets zoom over the last three years. Now, some of them are leading the sell-off.

Canada’s main stock index slid 2.6% on Tuesday and is down 12.7% from its record high reached April 19. Canada is a major exporter of oil, natural gas and minerals.

Russia’s RTS index tumbled 9.4% on Tuesday and is down 30% since May 6. Russia also is a large energy exporter.

Peter Boockvar, stock strategist at brokerage Miller Tabak & Co. in New York, thinks investors are right to be worried about the global economy. As the Fed and other central banks raise interest rates, they are taking away the easy money that has propped up consumer spending and market speculation, he said.

“That major pillar of the economy is going away,” Boockvar said. He believes U.S. stocks are in the early stages of a bear market, which typically is defined as a decline of at least 20% in major indexes.

Many other analysts, however, say the market is in a “correction” rather than a bear phase, and that investors merely are adjusting to expectations for slower economic growth. A correction usually shaves 10% to 15% from major indexes before they rebound.

The Standard & Poor’s 500 index, which fell 12.71 points, or 1%, to 1,223.69 on Tuesday, is down 7.7% from its five-year high reached May 5. The Dow is down 8% from its recent high.

The Nasdaq composite has fared worse. It is down 12.6% from its five-year high on April 19. The Russell 2,000 small-stock index, which lost 1.5% Tuesday, is off 14% from its record high May 5.

Markets will be braced today for another inflation report, as the government gives details on May consumer prices.

Among the day’s highlights:

* Losers topped winners by 3 to 1 on the New York Stock Exchange in heavy trading.

* Energy and mining stocks led the commodity sector lower. Exxon Mobil fell $1.59 to $56.65, its worst close since December. Copper miner Phelps Dodge slid $2.51 to $74.30.

But VeraSun Energy, a producer of ethanol, priced its initial stock offering at $23 a share, above expectations. The stock will begin trading today on the NYSE under the symbol VSE.

* Some investors sought the perceived safety of healthcare stocks. That industry is considered less vulnerable to swings in the broader economy. Drug firm Bristol-Myers Squibb gained 34 cents to $24.82 and healthcare services provider Humana rallied 89 cents to $50.79.

* The Treasury market continued to benefit from stocks’ woes, as some investors sought bonds as a haven. The 10-year T-note yield dipped to 4.97% from 4.98% on Monday.

* Overseas, Japan’s Nikkei-225 index tumbled 614.41 points, or 4.1%, to 14,218.60, its largest drop since May 2004. The index has fallen 19% from its five-year high reached April 7.

The Indian stock market, one of the best performers in recent years, already is deep in bear-market territory. The Bombay 500 index dropped 5% on Tuesday. It is down 31% since May 10.