Stocks Take Another Drubbing

Wal-Mart and Home Depot reported on the same day that investors were treated to mixed inflation data. The Labor Department's producer price index for July rose 0.6% last month, doubling expectations. However, the so-called core number, which excludes food and energy, rose 0.1%, and was half of what was anticipated.

Still, the core PPI has now risen 2.3% over the last 12 months, the biggest gain in two years, something the Federal Reserve will have to keep a close eye on.

"The headline and the year-over-year core numbers was hotter than expected, and that indicates the Fed still has a lot to do on the inflation side," said Paul Mendelsohn, chief investment strategist with Windham Financial.

"The core reading was good, but this doesn't solve the problem for the Fed," he continued. "It still makes it tough for the Fed to ease."

On Wednesday, the consumer price index, which is arguably the more important of the two, is due.

"Without a redirection of focus back to fundamentals, the selling will continue and we may drop below the 13,000 level on the Dow," said Robert Pavlik, chief investment officer with Oaktree Asset Management. "With the stabilization in the credit market yesterday the Fed thought their work was done, but it seems the market needs some additional hand-holding. They should've kept up the additional liquidity in the market."