Worried investors push down stocks
NEW YORK » Inflation fears pushed stocks modestly lower yesterday as a surge in wholesale prices obscured data showing signs of a moderating economic growth.
While the Labor Department's producer price index showed that high energy costs have not yet affected core wholesale prices -- without food and energy -- a stronger-than-forecast jump in overall PPI compounded concerns that soaring oil prices will inevitably drive other prices higher.
A drop in new home construction fed hopes that economic growth is tapering and could bring an end to the Federal Reserve's campaign to boost interest rates and contain inflation. But a strong reading on industrial activity and a fresh rise in crude oil nonetheless kept investors on edge.
"When you add up all the numbers, the economy is doing well, but there's still a hint of inflation around," said Larry Wachtel, a market analyst for Wachovia Securities. "I can't really say anything today would persuade the Fed to stop raising rates in June."
The mixed economic numbers muddled the outlook for interest rates and countered excitement over solid earnings from Wal-Mart Stores Inc. and a rebound in bonds. Investors were already looking ahead to today's report on consumer prices for more clarity about the inflation picture.
At the close of trading, the Dow Jones industrial average lost 8.88, or 0.08 percent, to 11,419.89.
Broader stock indicators also declined. The Standard & Poor's 500 index dropped 2.42, or 0.19 percent, to 1,292.08, and the Nasdaq composite index fell 9.39, or 0.42 percent, to 2,229.13.
Crude futures inched upward following two days of selling, and as the market awaited the government's weekly inventory update today. A barrel of light crude rose 12 cents to settle at $69.53 on the New York Mercantile Exchange.
While Wall Street is always sensitive to economic data, investors have been particularly anxious since the Fed last week said it may pause its series of interest rate hikes if economic conditions warrant it.
One of the Fed's primary concerns is keeping inflation in check, so any signs of rising prices or a too-robust economy is likely to unnerve the stock market.
"I'm surprised the market didn't sell off more as a result of the PPI and housing numbers," said Steve Neimeth, senior vice president and portfolio manager at AIG SunAmerica.
"Interest rate expectations are way too low in light of this data."