Stocks tumbled Tuesday after a measure of wholesale inflation rose more than expected, sparking worries that the Federal Reserve will start focusing on rising prices rather than slowing growth.
The Dow Jones Industrial Average dropped more than 100 points in the first few minutes of trading. There was weakness in all sectors except energy, as crude oil continued its relentless ascent, trading upwards of $128 a barrel.
The producer price index rose just 0.2 percentin April, as the government's gauge of gasoline prices fell. Core wholesale prices, however, which exclude food and energy costs, jumped 0.4 percent, double what economists had expected. Over the past 12 months, core PPI has surged 3 percent, the largest gain since December 1991.
"There was some acceleration in the nonenergy sector with a curious rise in furniture and household durables," Jeoff Hall, chief U.S. economist at IFR Markets, told Reuters. "It may be costing more to ship them and bring them out of warehouses rather than more demand for them." Food prices remained in check in April, but are likely to rise in May, Hall said.
"Nothing here bodes well for consumers," Joel Naroff, president of Naroff Economic Advisors, said. "We are not going to see easing anytime soon."
Economists noted that this report on inflation at the wholesale level, compared with last week's report on consumer prices, shows that businesses have been incurring sharper price increases than they have been able to pass on to consumers.
There is "more pressure on businesses to raise their costs," Naroff said. "This is problematic in an economic slowdown we are in right now. This will have a more negative news for earnings and inflation."
Home Depot reported its profit plunged 66 percentas the home-improvement retailer closed stores and cut back on expansion plans amid the housing meltdown. The company's profit rang up at 21 cents a share including a hefty charge for store closings. Excluding one-time items, Home Depot earned 41 cents a share. Analysts had expected 37 cents a share.
The Home Depot report comes a day after rival Lowe'sbeat earnings expectations but issued a cautious outlookfor the rest of the year.
Home Depot didn't update its full-year outlook ahead of its June 5 analyst meeting.
In other earnings news, Target reported its profit slipped 7.5 percentas shoppers focused on staples suchs as food instead of the chain's chic clothes and home furnishings, crimping margins. Still, the results beat forecasts.
Staples' earnings arrived in line with expectations. The office-supplies chain also launched a hostile 1.5 billion euro ($2.3 billion) bid for Dutch firm Corporate Express.
On the Micro-hoo front, Microsoft's alternative proposal for Yahoo involves Microsoft buying Yahoo's search business and taking a minority passive stake in the company, once Yahoo has spun off its Asian assets, a person familiar with the discussions, told Reuters.
Airlines are coming under increased pressure as a new survey showed consumer satisfaction is at its lowest level since 2001, with delays, flight cancellations and steep rises in ticket prices cited as the main reasons for complaints.
And Napster , the digital music service, on Tuesday opened the world's biggest MP3 download store with more than 6 million songs in a direct challenge to Apple's iTunes store.
TUESDAY: Earnings from HP after the bell; Kentucky, Oregon primaries
WEDNESDAY: MBA mortgage applications; crude inventories; Fed's Warsh speaks; Fed minutes; Earnings from BJ's Wholesale
THURSDAY: Jobless claims; Fed's Kroszner speaks; Earnings from Gap; Libertarians choose presidential candidate
FRIDAY: Existing-home sales; Bond market closes early for Memorial Day holiday
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