Stock market trips over inflation and oil prices
NEW YORK » Wall Street stumbled yesterday after oil prices spiked to a new record above $129 a barrel and a government report raised investors' concerns about the impact of inflation on consumer spending.
Crude jumped after OPEC's president was quoted as saying his organization won't raise its output before its next meeting in September. That sent a barrel of light, sweet crude to a trading high of $129.60 before it finished just above $129 a barrel on the New York Mercantile Exchange.
Meanwhile, the U.S. Labor Department's producer price report indicated higher energy and food prices might be seeping into other parts of the economy -- compounding investors' concerns raised by higher oil. The department said wholesale inflation edged up by 0.2 percent in April following a 1.1 percent jump in March, but outside of food and energy, prices rose by a faster 0.4 percent -- double what analysts expected.
Wall Street is worried that a drop-off in consumer spending could ensue if wholesale price increases are passed along.
Analyst Stephen Leeb believes escalating oil prices and their fallout have now replaced the health of the financial sector as the market's biggest worry. He said rising energy creates a "very vicious circle" through the economy, and thinks the government must take some kind of action to bring down prices.
"Stock investors are watching oil, period," said Leeb, whose New York-based Leeb Capital Management focuses on crude and its impact on equities. "The events that moved the market before revolved around write-offs and foreclosures, but all that's changed."
The retreat in major indexes reversed the optimism of last week, when stocks rose on a growing belief that the economy is still managing to plod along despite worries about both oil prices and the global credit crisis. The loss showed that the market has yet to shake off the volatility that has plagued it since last summer.
The mood on the Street was further depressed yesterday by sluggish retail reports and comments from Federal Reserve Vice Chairman Donald Kohn that policymakers are likely to hold interest rates steady.
The Dow fell 199.48, or 1.53 percent, to 12,828.68, logging its biggest daily slide since a 206-point drop May 7.
Broader market indexes also retreated. The Standard & Poor's 500 index shed 13.23, or 0.93 percent, to 1,413.40, and the Nasdaq composite index dropped 23.83, or 0.95 percent, to 2,492.26.
The Russell 2000 index of smaller companies fell 2.81, or 0.38 percent, to 735.64.
Declining issues led advancers by nearly 2 to 1 on the New York Stock Exchange. Consolidated volume came to 3.74 billion shares, up from 3.55 billion on Monday.
Bond prices rose as investors sought the relative safety of government securities. The yield on the benchmark 10-year Treasury note fell to 3.78 percent from 3.83 percent Monday. Gold gained, and the dollar fell against other major currencies.
Concerns about rising inflation, spurred by higher prices for commodities, were the topic of a speech by Kohn.
The policymaker said he was cautiously upbeat that the economy will recover, and that the central bank "appears to be appropriately calibrated" to manage inflation over the medium term.