Major stock indexes finished lower Wednesday, as the Dow faltered after three straight all-time closing highs. A set of surprisingly firm economic data raised inflation fears and could put pressure on the Federal Reserve to tighten credit, says Standard & Poor's Equity Research.
On Wednesday, the Dow Jones industrial average edged down 5.44 points, or 0.04%, to 12,577.15, after touching a new all-time intraday high of 12614.00. The broader Standard & Poor's 500 index slipped 1.28 points, or 0.09%, to 1,430.62. The tech-heavy Nasdaq composite dropped 18.34 points, or 0.74%, to 2,479.42.
NYSE breadth was slightly positive, with 18 issues advancing for every 16 declining. Nasdaq breadth was 17-13 negative.
Some analysts say a pullback was expected after recent gains, but they don't expect the decline to be long-lasting. "Clearly, the market is overdue for a correction that amounts to something more than the moderate pullbacks experienced over the past six months," says Richard Dickson, senior market strategist at Lowry's Reports. "But at this point, the market does not appear set up for a sizeable decline."
Traders were digesting a plateful of economic data Wednesday. The U.S. producer price index, or PPI, rose 0.9% in December, while the core PPI rose 0.2%, both a little more than expected. But the report might not have much impact ahead of Thursday's more important consumer price index data, says Action Economics.
Much of the PPI increase stemmed from gains in food and energy costs, which could carry implications for the headline CPI reading. "The one area that pops out immediately as potentially creating upside risk is food," says Jan Hatzius, chief U.S. economist at Goldman Sachs, in a note to clients.
Meanwhile, the Fed's Beige Book report indicated modest economic growth, moderate prices increases, and continued softening in the housing market. Fed Chairman Ben Bernanke is set to testify to the Senate Budget Committee on Thursday.
U.S. industrial production gained 0.4% in December, slightly above expectations, after a revised 0.1% drop in November. Separately, net foreign purchases of U.S. assets added $74.9 billion in November, up from a downwardly revised $60.4 billion in October.
In addition, the National Association of Home Builders' housing market index advanced to 35 in January, from 33 in December.
Looking ahead, the barrage of data is set to continue Thursday. Investors will be sifting through reports on CPI, housing starts, weekly jobless claims, leading indicators, and the Philadelphia Fed's index of regional manufacturing activity.
Earnings season was also picking up steam Wednesday. Intel (INTC) was lower after the chipmaker warned of declining profit margins in 2007, despite reporting stronger-than-expected fourth-quarter profit.
J.P. Morgan (JPM) edged up after the bank reported a 68% jump in fourth-quarter earnings.
Shares of AMR (AMR) fell after the American Airlines parent company swung to a $17 million fourth-quarter profit.
On the downside, discount brokerages Charles Schwab (SCHW) and TD Ameritrade (AMTD) were lower despite stronger-than-expected quarterly results.
Homebuilder Lennar (LEN) was up despite swinging to a fourth-quarter loss.
Companies due to report quarterly results after the bell include (AAPL), followed by IBM (IBM) and Merrill Lynch (MER)on Thursday.
Among Wednesday's other stocks in the news, Cisco (CSCO) weighed on the tech sector after analysts at Bank of America, Merrill Lynch, and Prudential each downgraded the stock to neutral.
McDonald's (MCD) was up after the fast-food chain operator said global same-store sales rose 7.2% in December and forecast a fourth-quarter profit topping analyst estimates.
On the M&A front, Cablevision (CVC) rejected the controlling Dolan family's bid to take the company private at $30 a share, calling the offer "inadequate."
In the energy markets Wednesday, February West Texas Intermediate crude oil futures rose $1.03 to $52.24 a barrel, rebounding from a 20-month low in a volatile session. March crude futures take over as the lead month on Thursday.
European markets finished lower, though up from their weakest levels of the session. The FTSE-100 index in London fell 11.2 points, or 0.18%, to 6,204.5. Germany's DAX index dropped 15.12 points, or 0.23%, to 6,701.7. In Paris, the CAC 40 index was down 29.76 points, or 0.53%, to 5,561.78.
Asian markets ended mixed Wednesday. In Japan, the Nikkei 225 index rebounded 58.89 points, or 0.34%, to 17,261.35. In Hong Kong, the Hang Seng index gained 36.62 points, or 0.18%, to 20,064.57. Korea's Kospi index lost 10.23 points, or 0.74%, to 1,379.48.
Treasury yields ticked higher after the firm PPI, NAHB, and industrial production numbers. The 10-year note fell in price to 98-26/32 for a yield of 4.79%, while the 30-year bond dropped to 94-06/32 for a yield of 4.88%. Traders were nervous ahead of tomorrow's CPI, housing starts, and Philly Fed reports, says S&P.