Inflation fears resurface after crude oil rises
NEW YORK » Higher oil prices and news of slowing growth in the service sector pulled stocks lower yesterday despite some optimism over a $25 billion bid for Guidant Corp.
Inflation worries again plagued Wall Street as crude futures pierced $60 per barrel, reinforcing concerns that the Federal Reserve might continue lifting interest rates to stem inflation from increased energy costs.
Last week, the market broke a five-week rally after a string of government reports painted a rosier picture of the economy than many had been predicting. That economic strength could justify more interest rate hikes and halt Wall Street's year-end advance, said Bill Groenveld, header trader at vFinance Investments.
"Whether the market flattens out for the next couple of weeks, there's always going to be uncertainty about the future," Groenveld said. "It's going to be a real news-sensitive market over the next quarter."
Stocks retreated after the Institute for Supply Management reported a slowdown in the service sector despite rebounds in new orders and employment. Investors, however, shrugged off a drop in the prices paid index, which bodes well for inflation.
The Dow Jones industrial average lost 42.50, or 0.39 percent, to 10,835.01.
Broader stock indicators were also lower. The Standard & Poor's 500 index fell 2.99, or 0.24 percent, to 1,262.09, and the Nasdaq composite index dropped 15.73, or 0.69 percent, to 2,257.64.
Bond prices extended last week's selloff, with the yield on the 10-year Treasury note rising to 4.57 percent from 4.52 percent late Friday. The dollar declined against other major currencies, while gold prices continued climbing above $500 per ounce.
Forecasts for the Northeast's first big snowstorm triggered a runup in energy prices. A barrel of light crude added 59 cents to settle at $59.91 on the New York Mercantile Exchange, but natural gas, a common heating fuel, tumbled 27.1 cents to $13.66 per 1,000 cubic feet after surging more than 50 cents during in the session.
With little economic data expected this week, Wall Street will likely face several days of profit-taking following a monthlong rally that boosted the Dow about 7 percent from its October lows, said Michael Sheldon, chief market strategist at Spencer Clarke LLC.
Sheldon said the market's advance could be derailed entirely by escalating oil prices, higher yields on long-term bonds and indications that corporate earnings will fall short of expectations. "But until we see several days of significant selling and increased volume, we have to give the benefit of the doubt to the bulls," Sheldon said.