What the data man giveth, sometimes he taketh away.

After Monday's good economic news bolstered retailing, technology and homebuilding companies, Tuesday's data on inflation went the other way and so did stocks. Meanwhile, energy prices and related stocks kept falling, leaving the broader averages suffering.

The

Dow Jones Industrial Average

lost 0.6% to 10,487.65, while the

S&P 500

slipped 0.7% to 1175.43. The

Nasdaq Composite

also fell 0.7% to close at 2078.62.

All of the stocks mentioned as big gainers in

Monday's column fell on Tuesday.

Wal-Mart

(WMT) - Get Report

, which reported lackluster third-quarter results while increasing its fourth-quarter outlook, lost 1.4%;

Target

(TGT) - Get Report

fell 1.9%, and

Delta

(DAL) - Get Report

lost 3.2%.

In the energy patch,

Exxon Mobil

(XOM) - Get Report

was down another 0.3%,

BP

(BP) - Get Report

shed 0.6%, and

ChevronTexaco

(CVX) - Get Report

was down just 3 cents. Oil slipped almost 2% to $46.11.

The big damage came on the inflation front, as higher prices imply more rate hikes from the

Federal Reserve

and a loss of buying power for consumers. Prices for finished goods paid by producers rose 1.7% in October, the biggest one-month increase since 1990, and 4.4% over the previous year. Even excluding the volatile food and energy components, so-called core PPI rose 0.3%, the same as the previous month, and 1.7% over the previous 12 months.

Overall, the report was "much stronger than expected," Prudential's Rita Lavin wrote.

Retail sales also hurt. Chain-store sales for the previous week slipped 0.4%, the fourth decline in the past five weeks, according to the International Council of Shopping Centers.

Of course, it could all go the other way on Wednesday when data on consumer prices, housing starts, U.S. oil inventories and industrial production arrive.

The threat -- or promise -- of so much data on Wednesday may have put a damper on the reaction in the bond market to the PPI. The yield on the 10-year Treasury note rose only to 4.21% from 4.19% on Monday and remained below its recent high last week of 4.27%.

The economy's strength and the Fed's need to raise rates ultimately will become clear, to the detriment of bondholders far more than equity investors, says Morgan Stanley economist Richard Berner.

"The real disconnect lies in the contrast between current and prospective economic circumstances and the low level of real interest rates," Berner writes. "So I think that the current dissonance between rallying equities and skeptical bond markets will eventually be resolved in favor of higher yields."

Housing Backtrack

The tussle over future conditions for the real estate market also reversed course on Tuesday. Homebuilders rallied Monday when the National Association of Realtors reported ridiculous price increases in many metro areas for the third quarter. It didn't sound very reassuring for future price movements, but the sector rallied. On Tuesday, the sector sold off hard as rates ticked higher and expectations for further Fed action increased as well.

William Lyon

(WLS)

lost 4%,

Pulte Homes

(PHM) - Get Report

lost almost 3%, and

Lennar

(LEN) - Get Report

lost 2%.

Home improvement retailers that have benefited from all the building activity also fell.

Lowe's

(LOW) - Get Report

dropped for the second day, falling 2% after its disappointing outlook delivered on Monday.

Home Depot

(HD) - Get Report

reported a 15% increase in earnings and raised its full-year outlook but still fell almost 2%.

The ultimate outlook for these sectors comes down to the health of the consumer, and the news there remains troubling. Consumer credit is at record levels even as interest rates remain very low. No additional tax relief is coming anytime soon from Washington, and home heating bills could rise 28%, according to the

Energy Department. If inflation picks up generally, consumers will get squeezed even more.

That the finished-goods PPI posted a surprise gain shouldn't have been much of a surprise to those who have been reading the intermediate- and raw-materials price gauges for the past year. Aside from oil, all manner of commodities and products made out of commodities have jumped in price. In Tuesday's report, the rate of increase in those areas lower down the production chain actually slowed.

At one level, Monday and Tuesday's economic reports are perfectly consistent: The Federal Reserve is going to keep raising interest rates for a while more. A strong economy as seen of late in consumer confidence, manufacturing activity and homebuilding doesn't need as much stimulation from historically low rates. At the same time, the danger of the economy overheating and producing inflation appears to be growing.

Chicago Federal Reserve Bank President Michael Moskow was right on the mark when he spoke to his city's chamber of commerce on Tuesday. Interest rates are still low enough to provide a lot of stimulation, probably too much, and need to be raised, he warned behind a screen of the usual Fedspeak.

"By any measure, monetary policy remains accommodative," he told the business audience. "Accommodative policy has been necessary to support economic growth, but as the economy continues to strengthen and employment picks up, interest rates will need to return to a neutral level."

After noting that the Fed has already raised its benchmark fed funds rate from 1% to 2% since June, Moskow added that there is "certainly more ground to cover."

In fact, the only real caveat he gave was that the Fed could move slowly because inflation remained "well contained," echoing language in the central bank's own statement last week.

After Tuesday's PPI report, even that limit on rate hikes may be fading.

In keeping with TSC's editorial policy, Pressman doesn't own or short individual stocks. He also doesn't invest in hedge funds or other private investment partnerships. He invites you to send

your feedback.