Terrible Tuesday

Updated from 3:37 p.m. EDT Stocks in New York spent the entire session in negative territory Tuesday and closed lower as investors, still fretting about the turmoil in the financial sector, received another blow from a steeper-than-expected increase in wholesale-level inflation.

The Dow Jones Industrial Average lost 130.84 points, or 1.1%, at 11,348.55, and the S&P 500 slipped 11.92 points, or 0.9%, to 1266.68. The Nasdaq dropped 32.62 points, or 1.4%, to 2384.36.

Providing pressure to the major indices, the Bureau of Labor Statistics' producer price index showed a 1.2% increase for July, much more than the 0.6% expected by economists. The core rate jumped 0.7% for the month, also exceeding expectations of a 0.2% increase. Year over year, the core PPI increased 3.5%.

Doug Roberts, chief investment strategist for ChannelCapitalResearch.com, said that if inflation were a true concern for the market, Treasury yields would be higher. He said the major concern is that the credit markets have a long way to go before resolving their problems.

"We're scraping along the bottom, but the interesting thing about this bottom is that it's going to be volatile," he said. "Every time you think the patient's stabilized, there's another organ failure."

In a separate report, the Census Bureau revealed that housing starts decreased 11% to an annual rate of 965,000 in July, a result that was slightly ahead of analyst forecasts. Building permits declined 17.7% to an annualized rate of 937,000.

"Every report is always how far they're off from a year ago. That doesn't tell you anything about whether they're getting better or worse," said Jim Paulsen, chief investment strategist for Wells Capital Management. "I think both are showing some bottoming patterns after full-fledged collapse during the last half of last year."