Inflation fears rattle stocks
Stocks slid for a second day in a row Wednesday after an increase in labor costs stirred concerns about inflation and interest rates.
The Dow Jones industrials fell nearly 130 points.
The Labor Department said that unit labor costs rose 1.8% in the first quarter, raising worries about wage pressures. The readings aggravated investors’ concerns that the Federal Reserve might lean toward raising rather than cutting rates this year.
Compounding the rate jitters, the European Central Bank raised its benchmark interest rate to a nearly six-year high in an effort to fight inflation and hinted at further tightening to come. Stocks in Europe sank.
George Shipp, chief investment officer at Scott & Stringfellow, said investors shouldn’t read too much into the pullback in U.S. stocks.
“The market has come a long way,” he said. “We’re down for a couple days, but we’ve been up for 11 out of the last 12 months. Right now, you’d have to call it normal profit-taking.”
The Dow Jones industrials fell 129.79 points, or 1%, to 13,465.67. The Standard & Poor’s 500 index fell 13.57 points, or 0.9%, to 1,517.38, and the Nasdaq composite index fell 24.05 points, or 0.9%, to 2,587.18.
The Russell 2000 index of smaller companies fell 7.04 points, or 0.8%, to 841.21.
Falling issues outnumbered advancers by about 4 to 1 on the New York Stock Exchange.
The decline came a day after stocks slumped as service sector data and remarks by Fed Chairman Ben S. Bernanke hinted that the economy was on the rebound, lowering the chance of a decrease in short-term interest rates.
But despite the fresh concerns about inflation, the economic picture doesn’t appear to have changed substantively from last week when the S&P; 500 broke a 7-year-old closing record and the Dow continued to hit fresh highs.
“I think the underlying fundamentals that have gotten us to this point -- global growth, excellent corporate profitability, obviously a lot of merger activity -- haven’t changed,” Shipp said.
Bond yields slipped after jumping Tuesday. The yield on the benchmark 10-year Treasury note fell to 4.97% from 4.99% late Tuesday.
The dollar was mixed against other major currencies, while gold prices fell slightly.
Crude oil futures rose 35 cents to $65.96 a barrel on the New York Mercantile Exchange.
In other market highlights:
* Guess jumped $1.80, or 3.8%, to $49.22. The apparel firm’s forecast pleased investors after the company reported that its fiscal first-quarter profit jumped 72%.
* Stocks of home builders retreated after the National Assn. of Realtors on Tuesday said declines in U.S. home sales and home prices were going to be steeper than previously forecast. D.R. Horton fell 50 cents, or 2.2%, to $22.44. Lennar slipped 60 cents, or 1.4%, to $44.28.
* Railroad shares dropped after UBS said Union Pacific and Burlington Northern Santa Fe might cut their earnings forecasts as U.S. shipping volumes shrink. Union Pacific fell $2.82 to $118.16, and Burlington Northern dropped $2.41 to $90.49.
* Whole Foods Market fell for a second day on word that the Federal Trade Commission planned to block the natural-food grocer’s purchase of rival Wild Oats Markets. Whole Foods declined $1.23, or 3%, to $39.25. Wild Oats fell 29 cents, or 1.7%, to $16.87. Some other retailers fell on concern that they could be affected by the agency’s stance. Borders Group sank 99 cents, or 4.5%, to $20.79. OfficeMax slid 66 cents, or 1.5%, to $43.40.
* Shares of oil refiners fell as their profit margin based on futures trading shrank. Sunoco dropped $3.17, or 3.8%, to $80.20. Valero Energy retreated $1.76, or 2.3%, to $74.26.
* Boyd Gaming slipped $2.06, or 3.9%, to $50.44. An analyst at Thomas Weisel Partners downgraded the casino operator amid concerns about the future of some development projects.
* Panera Bread fell $8.04, or 14%, to $50.28 after the restaurant chain reduced its forecasts for second-quarter profit and same-store sales.
* Johnson Controls rallied $4.31, or 4%, to $112.76 after Credit Suisse raised its rating on the shares to “outperform” from “neutral,” citing a robust outlook for the company’s building service division.
* U.S. shares of XTL Biopharmaceuticals plunged 63 cents, or 18%, to $2.90. The company halted development of a hepatitis C drug candidate after a clinical trial indicated it was no more effective than a placebo in reducing patients’ viral loads.
* Pfizer declined 49 cents to $26.79 after a U.S. Supreme Court justice rejected the drug maker’s bid to force two rival companies to stop selling generic versions of a Pfizer blood pressure drug.
* TD Ameritrade Holding jumped 76 cents, or 3.8%, to $20.71. Two hedge funds Tuesday called on the online brokerage firm to join forces with either E-Trade Financial or Charles Schwab.
* Russ Berrie jumped $1.05, or 5.9%, to $18.76. The maker of stuffed animals and children’s gifts rejected an unsolicited takeover bid of $18 a share, saying it undervalued the company.
* Ivanhoe Energy surged 21 cents to $2.05 after the small oil firm demonstrated new technology for recovering high-grade oil.
* Overseas, key stock indexes rose 0.2% in China and fell 0.1% in Japan, 1.7% in Britain, 2.4% in Germany and 1.7% in France.
