Dow Plunges; Nasdaq Turns Negative on Yr.
Wednesday May 17, 2:22 pm ET
By Christopher Wang, AP Business Writer
NEW YORK (AP) -- Stocks plunged Wednesday after a stronger-than-expected rise in consumer prices intensified Wall Street's fear that interest rates will keep climbing. The Dow Jones industrial average lost 200 points, and the Nasdaq composite index turned negative for the year.
Investors were disappointed by a Labor Department report that its consumer price index swelled 0.6 percent in April, topping forecasts of 0.5 percent. But core CPI -- without food and energy -- also gained 0.3 percent, ahead of economists' prediction and adding to worries that soaring oil prices have begun to lift prices elsewhere.
The inflation data dragged bonds lower and overshadowed solid earnings from Hewlett-Packard Co. and cooling oil prices. Wall Street has been anxious about economic news after the Federal Reserve last week said more rate hikes could be needed to battle inflationary pressures from record commodities prices.
"The CPI data really kicked the market in the teeth today," said Ken Tower, chief market strategist for Schwab's CyberTrader. "So the question now really is where can we find some support?"
With the Dow coming within 75 points of its all-time high of 11,722.98 last week, many analysts felt the market was overbought and would soon see a correction. But Tower said stocks are now oversold after several days of steep losses, suggesting that investors may start looking for positive signs to spur buying.
In midafternoon trading, the Dow sank 200.03, or 1.75 percent, to 11,219.86, a one-month low. The Dow was poised to log its biggest single-day drop since falling 213 points on Jan. 20.
Broader stock indicators declined. The Standard & Poor's 500 index was down 18.26, or 1.41 percent, at 1,273.82; the Nasdaq fell 25.93, or 1.16 percent, to 2,203.20, showing a loss for the first time in 2006.
The prospect of higher interest rates hurt bonds, with the yield on the 10-year Treasury note surging to 5.17 percent from 5.1 percent late Tuesday. Last Friday, bond yields reached a four-year high of 5.19 percent.
While Wednesday's retreat reflected Wall Street's ongoing nervousness about interest rates, investors may have gotten ahead of themselves before last week's Fed meeting. Many traders were betting that the central bank would pause its two-year streak of rate hikes, and catapulted the major indexes to fresh multiyear highs.
The Fed boosted rates to 5 percent and left flexibility to pause its rate tightening. However, the Fed cautioned that soaring oil and gold prices threaten to drive inflation and could warrant higher interest rates to stifle demand and keep prices from escalating. The CPI report and Tuesday's producer price index reading reinforced that warning.
Gregory Miller, SunTrust Banks' chief economist, said the market was still largely split on whether the Fed will increase the key short-term lending rate by another quarter percentage point when policymakers meet on June 29.
"But it won't surprise me if this is when they decide to start the pause and allow data to accumulate," Miller said. Looking at data from the first half of the year, "I suspect what they'll find is energy prices will stop trending higher, and the slower growth numbers will accumulate."
The U.S. dollar continued losing ground to the Japanese yen and also weighed on the market's mood, CyberTrader's Tower said. The dollar's retreat could propel inflation since more of the U.S. currency will be needed to purchase foreign-made goods.
"The dollar has depreciated quite sharply since the Fed started talking about stopping its rate hikes," Tower said. "It's not so much that the dollar is depreciating -- it's the speed of the depreciation that is worrying the currency market. The dollar is down 6 percent in one month, which is a lot."
Crude futures dipped on data showing U.S. gasoline reserves grew for a third week in a row. A barrel of light crude dropped 88 cents to $68.65 on the New York Mercantile Exchange.
HP was the Dow's sole winner after saying its profit swelled 51 percent last quarter on improved sales. The company also announced plans to consolidate its global data centers in an effort to trim $1 billion of expenses. HP climbed 99 cents to $32.10.
Applied Materials Inc. fell 84 cents to $17.01 despite posting a sharp rise in quarterly earnings, handily beating Wall Street expectations. The chipmaker also forecast results ahead of current estimates.
Xstrata PLC offered to pay $14.5 billion for the remaining 80.2 percent of Canadian mining company Falconbridge Ltd. it doesn't already own, topping Inco Ltd.'s $17.7 billion advance. The $47.19-per-share bid sent Falconbridge shares up 66 cents to $49.44.
Honda Motor Co. plans to build a new U.S. plant -- its sixth in North America -- as part of $1.18 billion expansion to meet surging demand for its cars. Honda slipped 65 cents to $34.43.
Declining issues led advancers by more than 4 to 1 on the New York Stock Exchange, where volume of 1.33 billion shares topped the 1.1 billion shares changing hands at the same point Tuesday.
The Russell 2000 index of smaller companies tumbled 8.95, or 1.21 percent, to 728.52.
Overseas, Japan's Nikkei stock average added 0.92 percent. Britain's FTSE 100 lost 2.92 percent, Germany's DAX index sank 3.4 percent and France's CAC-40 was lower by 3.18 percent.
New York Stock Exchange: nyse.com
Nasdaq Stock Market: nasdaq.com |
