Stocks ended lower on Tuesday after a governemnt report showed that wholesale prices had their biggest jump in October about 15 years, raising fears that higher energy costs may slow down the economic recovery.
The Dow Jones industrial average closed down 62.59 points, or 0.59%, to 10,487.65. The broader Standard & Poor's 500 index slipped 8.38 points, or 0.71%, to 1,175.43. The Nasdaq composite index fell 15.47 points, or 0.74%, to 2,078.62.
Looking ahead, Wednesday will be another busy day on the earnings reporting front. Among the companies stepping up to the plate are medical device maker Medtronic (MDT) and tech concerns Applied Materials (AMAT) and Intuit (INTU).
On the economics calendar, investors are eagerly awaiting the gauge on consumer inflation know as the Consumer Price Index after Monday's surprising high reading on wholesale costs. The CPI for October is expected to increase 0.5% versus a 0.2% increase in the previous month. Excluding volatile food and energy prices, the CPI is seen increasing 0.2% versus a 0.3% rise in September. In a separate report, new housing construction in October is seen rising to a 2 million annualized rate from 1.998 million in the previous month.
And industrial production for the month is expected to rise by 0.3% vs. a 0.1% rise in the previous month.
Pressuring stocks on Tuesday was news that the
producer price index (PPI), a gauge of inflation at the wholesale level, jumped 1.7% in October -- far outstripping the 0.6% increase that had been expected. Higher energy and food costs were largely to blame. Excluding these two volatile elements, the core index rose 0.3%, vs. the 0.1% expected.
Despite the huge increase, analysts said the Federal Reserve will stay its course of raising interest rates gradually to fend off inflation. Last week, the Fed hiked rates by one-quarter percentage point to 2%, marking its fourth boost this year. The Fed next meets in December to decide whether to raise interest rates again.
Interest-rate sensitive stocks such as financial services giant Citigroup (C) were among the companies pulling the market down.
Tuesday was a bonanza for retailer earnings. Wal-Mart Stores (WMT), the world's biggest retailer, posted 13% higher profit that was in line with Wall Street guidance. The company also raised its outlook for the full year. But investors had been expecting even stronger results.
Home-improvement outfit Home Depot (HD) posted a 15% increase in quarterly profit that topped expectations, thanks to sales in its professional businesses and other units.
Staples (SPLS), the largest U.S. office products retailer, said its quarterly profit rose 26% thanks to higher sales of furniture, back-to-school supplies and other factors.
Department-store operator J.C. Penney (JCP) posted quarterly profit that nearly doubled, topping Wall Street expectations.
But not all retail earnings were upbeat. Saks (SKS), which runs department stores, reported an unexpected loss in its third quarter due to hurricanes in the southeastern U.S. that kept customers away from outlets and to charges for the closure of some stores.
In other stocks news, General Motors (GM) warned it may not reach its goal sometime mid-decade of hitting $10 a share in net income and blamed in part rising health care and pension costs, according to the Wall Street Journal.
Internet search engine Google's (GOOG) shares moved lower Tuesday after millions of shares owned by Google staff were open fo selling after being forbidden by securities law to sell them up to now.
Mortgage lender Fannie Mae (FNM) warned it will miss a Securities and Exchange Commission deadline to file its third quarter results while its auditor carries out a review of its statements.
NYMEX crude prices were off 76 cents to $46.11 per barrel Tuesday afternoon ahead of closely watched inventory reports scheduled for release Wednesday.
Treasuries finished lower in price Tuesday. The pop in PPI did not suggest runaway inflation, but it keeps the Fed in the picture, says Informa Global Markets. The yield on the benchmark 10-year Treasury note rose 2 basis points to 4.21%.
Meanwhile, the president of the Philadelphia Fed said in a speech on the U.S. economy on Tuesday that another oil price spike would pose a significant risk to the economy. But he echoed other Fed speakers that rates will be hiked in a measured way and dependent on incoming data.
European stock markets closed lower on Tuesday. London's Financial Times-Stock Exchange 100 index was off 32.70 points, or 0.68%, to 4,770.40 as volatile oil prices rose modestly. Pubs and cigarette makers fell as the government unveiled a plan to ban smoking in most bars and restaurants. Among the losers were pub owners Enterprise Inns, Mitchells & Butlers, Punch Taverns and cigarette makers Gallaher and Imperial Tobacco. Meanwhile, new reports showed a rise of 0.3% in consumer prices, while house prices grew at the slowest pace in 12 years.
Germany's DAX index was off 17.12 points, or 0.41%, to 4,117.22 as oil prices rose and the U.S. core was PPI higher than expected. Allianz was lower after Credit Suisse cut its rating on stock to neutral from outperform.
France's CAC-40 index slipped 26.70 points, or 0.70%, to 3794.27 as U.S. PPI report raised inflation concerns. Avenir Telecom was higher after the company said its first quarter earnings rose 89%. Peugeot was lower after the company reported its October car sales fell 11.5%.
In Asia, the markets finished lower on Tuesday. Japan's Nikkei 225 index fell 65.82 points, or 0.59%, to 11,161.75 on losses in key tech stocks. Kyocera skidded 2.37% while Advantest fell 1.66%. But Elpida Memory, which debuted on Monday, jumped 4% after the company said it aimed for an operating margin of 15% or more in the mid- to long-term.
In Hong Kong, the Hang Seng index declined 186.14 points, or 1.34%, to close at 13,746.08 with financial names leading losses.