MARKET REPORT : Economic doldrums drain market
Posted on Wednesday, August 20, 2008
NEW YORK — Wall Street fell sharply for a second straight session Tuesday after a hefty jump in wholesale inflation and a drop in new-home construction gave investors more reason to believe an economic recovery is far off.
The Dow Jones industrial average fell 130. 84, or 1. 14 percent, to 11, 348. 55, after losing 180 points on Monday. It was the worst two-day performance for the blue-chip index since late June.
The Labor Department said its Producer Price Index rose by 1. 2 percent in July, more than double the expected rate, and lifting the current annual rate to the loftiest level in 27 years. Even after stripping out food and energy, core prices rose by a higher-than-expected 0. 7 percent, the biggest increase since November 2006.
“Maybe investors were hoping to shrug off the challenges of high commodity prices and inflation,” said Jack Ablin, chief investment officer at Harris Private Bank. “But now we find out that perhaps the inflation situation is worse than we thought.”
A rebound in oil prices added to investors’ anxiety, which had abated slightly in recent weeks as crude tumbled from its July record above $ 147 a barrel to three-month lows.
Oil’s retreat over the past month had given the stock market a brief rally. But aside from August’s commodities drop, there have been few bright spots on Wall Street this summer; the banks are forecasting more losses, the credit markets are still tight, the housing market remains in a slump and the economy continues to lose jobs — all of which gives investors little reason to buy stocks.
The Commerce Department added to the heap of downbeat assessments Tuesday, reporting that July housing starts fell to an annual rate of 965, 000 units — higher than analysts predicted, but the lowest level in more than 17 years.
Broader stock indicators also declined Tuesday. The Standard & Poor’s 500 index fell 11. 90, or 0. 93 percent, to 1, 266. 70, and the Nasdaq composite index fell 32. 62, or 1. 35 percent, to 2, 384. 36.
The Russell 2000 index of smaller companies fell 11. 94, or 1. 61 percent, to 730. 03.
Declining issues outnumbered advancers by a ratio of about 11-to-4 on the New York Stock Exchange, where consolidated volume was a light 4. 07 billion shares, up from 3. 75 billion Monday.
Bond prices were mixed. While investors often seek the shelter of government debt when bad news arrives, inflation is a deterrent because it devalues the debt’s fixed returns. The yield on the benchmark 10-year Treasury note, which moves opposite its price, rose to 3. 84 percent from 3. 82 percent late Monday.
The dollar fell against other major currencies, driving up oil. Gold prices also turned higher.
Crude rebounded Tuesday by $ 1. 66 to $ 114. 53 a barrel on the New York Mercantile Exchange.
Overseas, Japan’s Nikkei stock average lost 2. 28 percent. Britain’s FTSE 100 fell 2. 38 percent, Germany’s DAX index fell 2. 34 percent, and France’s CAC-40 fell 2. 61 percent.
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