Dow Backs Off From 12,000
Stocks fell for the first time in four days Tuesday, pulling the Dow Jones industrial average back from 12,000, on concern that technology companies would fail to live up to earnings forecasts.
Investors had built up an uneasy optimism that corporate profits would remain robust as the Federal Reserve navigates a soft landing for the economy.
That confidence was dealt a setback Tuesday after the Labor Department reported a bigger-than-expected jump in core wholesale inflation, which stoked the market’s fears of higher interest rates. Also exasperating investors was a downgrade of Dow component Intel ahead of its third-quarter earnings report after the close of regular trading.
“The gains we’ve seen over the last three or four weeks have taken the market to an extreme, and it warrants a rest,” said Chris Johnson, director of quantitative analysis for Schaeffer’s Investment Research.
The rest came in a pullback in the Dow of 30.58 points, or 0.3%, to 11,950.02.
Broader stock indicators also declined. The Standard & Poor’s 500 index was down 5 points, or 0.4%, at 1,364.05, and the Nasdaq composite index fell 18.89 points, or 0.8%, to 2,344.95.
Crude oil fell for the first time in four days amid forecasts of higher U.S. inventories and skepticism that OPEC would cut production by 1 million barrels a day.
U.S. crude oil supplies probably climbed 1.5 million barrels last week, according to the median of forecasts by 14 analysts before an Energy Department report today.
“We are shrugging off OPEC’s production cuts,” said Kyle Cooper, director of research at IAF Advisors in Houston.
Crude oil for November delivery fell $1.01, to $58.93 a barrel in New York trading.
U.S. Treasury 10-year notes were little changed after a gauge of home builder confidence rose for the first time in a year.
The National Assn. of Home Builders/Wells Fargo index of builder confidence rose to 31 from a 15-year low of 30 in September, the Washington-based association said. A reading below 50 means most builders view conditions as poor.
The 10-year Treasury note’s yield, which moves inversely to its price, fell to 4.77%, from 4.78% on Monday.
The Labor Department said its producer price index fell 1.3% in September, the biggest decline in three years, while its core producer price index, which excludes food and energy prices, climbed 0.6%, rather than the expected 0.2%.
The stock rally that began in September had been predicated on hopes for strong corporate profits amid a slowing economy. Wall Street weathered a series of mixed economic reports on the belief that central bankers might have enough evidence to begin cutting rates in early 2007.
Meanwhile, a huge drop in oil prices in recent weeks helped bolster hope that consumer spending would be given a shot in the arm.
The new round of inflation worries jolted the markets and gave rise to speculation that the Fed might rethink its strategy.
“I think the Fed is going to weigh some of the data here,” said Andrew Richman, managing director of SunTrust Banks Inc.’s personal asset management division. “They’re pretty transparent that inflation is a concern.”
A deluge of earnings reports due this week, including 12 from Dow components, fed optimism that the rally would continue. Intel reported after the closing bell that third-quarter profit fell 35% but topped Wall Street projections.
The stock tumbled during the regular session after Goldman Sachs preemptively downgraded the world’s biggest chip maker to “neutral” from “buy.” The broker said that Wall Street projections for the company were too aggressive heading into the quarter, and that it continued to prefer rival Advanced Micro Devices.
Intel fell 71 cents to $20.90 during the regular session but rose to $21.18 in after-hours trading. AMD fell 90 cents to $24.48 in regular trading and was little changed after-hours.
Other technology companies reporting after the bell included Yahoo. The Internet portal, which met Wall Street forecasts, fell 3 cents to $24.15 in the regular session, then rose to $24.83 after the bell.
In other market highlights:
* Home builders didn’t get much help from the slight uptick in builder confidence. KB Home gave up 77 cents, to $43.35, and Pulte Homes dropped 51 cents to $32.30. DR Horton retreated 48 cents to $23.54.
* United Technologies fell $1.51 to $65.28. The diversified manufacturer reported that third-quarter profit rose 21% to top Wall Street projections but warned that a cooling of the U.S. housing market might hurt future quarters.
* Merrill Lynch rose 41 cents to $84.52 after it reported that third-quarter profit more than doubled.
