Stocks' Bad Day Just Getting Worse
Updated from 11:13 a.m. EDT
Stocks in the U.S. were deepening their losses Tuesday as traders dealt with a slew of bad tidings, including warmer-than-expected inflationary data, negative news on the corporate side and another record for oil prices.
The
Dow Jones Industrial Average
tanked 193 points, or 1.5%, to 12,835, and the
S&P 500
sank 13 points, or 0.9%, to 1414. The
Nasdaq Composite
was down 30 points, or 1.2%, at 2487.
Before the opening bell, the Labor Department said that prices of goods at the wholesale level, excluding the volatile effects of energy and food, rose 0.4% in April from the prior month. That's double the 0.2% increase that economists were expecting, and also twice the price pickup of the prior month. The core index was up 3% in April from the year before, the biggest gain since December 1991 and topping the 2.8% high set in July 2005.
Still, wrote Ian Shepherdson, chief U.S. economist with High Frequency Economics, "Over time, core finished goods prices follow core raw materials, where the
year-over-year rate of increase, 24.6%, sounds alarming but is consistent with 2%
year-over-year core finished goods a year from now. Not much to worry about."
The overall producer price index registered a 0.2% price rise from the prior month, half the consensus estimate and down sharply from March's 1.1% jump.
Tony Crescenzi, chief bond market strategist with Miller Tabak and contributor to
RealMoney.com
, a sister site to
TheStreet.com
, said, "The only solace in these horrendous figures is the fact that the financial markets have already largely digested the idea that producer prices are rising rapidly, a fact that can't be missed when watching commodities prices on a day-to-day basis."
In a speech at a New Orleans conference this morning,
Federal Reserve
vice chairman Donald Kohn predicted that inflation will moderate over time and that spiking commodities should inflict "limited" spillover effects, but added that those forecasts "depend critically on the continued stability of inflation expectations."
"In that regard," he continued, "year-ahead inflation expectations of households have increased this year in response to the jump in headline inflation. Of greater concern, some measures of longer-term inflation appear to have edged up."
Kohn added that, if longer-term inflation expectations "were to become unmoored" because of ballooning commodities-strained numbers or because of a widespread misinterpretation of the Fed's easing campaign -- which since September has taken the benchmark lending rate down 325 basis points -- "then I believe that we would be facing a more serious situation."
At the same time, June's crude-oil contract, which is due to expire today, shot up to a new all-time high of $129.58 a barrel. Recently, futures were jumping $1.95 to $129. Gold futures were up $11.80 to $917.60 an ounce.
The currency markets were acting as another drag, with the dollar tumbling by 1% against the euro and by 1.1% against the British pound, while losing 0.7% to the yen at 103.65. The dollar index, which stacks the greenback against a basket of its major counterparts, was off 0.9%.
An analyst note from Brown Brothers Harriman identified one of the main culprits in Germany's Centre for Economic Research, which suggested that the European Central Bank might hike interest rates in the near term. That would further compound the dollar's slide against the euro, and the statement also runs contrary to the ECB's own recent dollar-boosting remarks suggesting it has shifted to a neutral stance.
Among equities,
Home Depot
(HD) - Get Report
was one of the day's worst-performing Dow components after saying its
plunged by two-thirds to $356 million, or 21 cents a share, as the home-improvement goods retailer continued to suffer from housing-sector woes. Excluding a one-time charge related to store closings and paring back of store-growth plans, earnings came to a better-than-expected 41 cents a share. Nonetheless, shares slumped 5%.
Also, last night Standard & Poor's cut
Fannie Mae
(FNM)
risk-to-the-government ranking, even while upholding Fannie's ratings for senior unsecured debt, subordinated debt, and preferred stock. Shares were down 3.7%.
Back in earnings,
Target
(TGT) - Get Report
beat Thomson Reuters's analyst estimates for 71 cents a share by 3 cents, though same-store sales dipped 0.7% and overall revenue
fell short
despite booking a rise from a year earlier. Shares were down 1.1% to $54.31.
Elsewhere,
Saks
(SKS)
shares surrendered 5.2% after its fiscal first-quarter income, up two-thirds from last year, nevertheless missed Street expectations.
Having a better day was office-supplies retailer
Staples
(SPLS)
, which said its quarterly profit picked up a bit to $212 million as the company benefited from its international exposure. That came a day after Staples went hostile with its $2.34 billion (1.5 billion euros) bid for Dutch-based
Corporate Express
. Staples shares rose 0.5%.
Among those set to report earnings after the market closes, meanwhile, is Dow component
Hewlett-Packard
(HPQ) - Get Report
.
Treasury prices were on the rise. The 10-year note added 11/32 in price to yield 3.79%, and the 30-year bond was up 15/32 in price, yielding 4.54%.
Overseas markets were mostly losing ground. Tokyo's Nikkei 225 shed 0.8% overnight, and the Hang Seng Index in Hong Kong sank 2.2%. In Europe, London's FTSE 100 was plummeting 2.5%, and Germany's Xetra Dax gave up 1.5%. The Paris Cac was falling 1.7%.