Stocks snapped a four-day winning streak Tuesday as an inflation report stoked rate fears and GE delivered a weak outlook.
The Dow Jones Industrial Average shed 49.05, or 0.5 percent, to close at 10,452. The S&P 500 and Nasdaq also lost about half a percent.
This came after the Dow, the S&P 500 and the Nasdaq all closed at 2009 highsMonday, with the Nasdaq now up more than 40 percent for the year.
Inflation at the wholesale levelsurged 1.8 percent in November, reflecting price jumps in energy and other products.
The jump in inflation comes as the Fed kicks off a two-day monetary-policy meeting today. Economists will be watching closely to see if the Fed keeps its pledge to keep rates low for an "extended period" — or if this inflation report is a game-changer that causes policy makers to temper that language.
But Joel Naroff of Naroff Economic Advisors pointed out that the pop in inflation at the wholesale level hasn't yet reached consumers.
"When it came to consumer goods, the changes were totally mixed, which tells me we don’t have a major, broad based price increase trend under way," Naroff wrote in a note to clients. "[T]he pathway from wholesale costs to retail prices is not direct so let’s not get too worried about inflation yet."
In the day's other economic news: New York State manufacturing weakened unexpectedly and homebuilder confidence fell — both in December.Industrial production rose a better-than-expected 0.8 percent in November.
The dollar rallied, hitting a 10-week high against the euro, amid worries about European banks and rising inflation after the PPI report.
Oil settled above $70 a barrel, snapping a nine-day losing streak, while gold ended above $1,125 an ounce.
Energy stocks were the day's best perfomers as commodity prices rose, while financials were at the bottom of the pack.
Financials were hard hit but Wells Fargo rose after the bank became the last of the major banks to repay its TARP funds, reaching an agreement with the government late Monday on paying back the $25 billion it received under the program.
The payback will come after Wells Fargo completes a $10.4 billion stock offering. That follows similar news from Citigroup earlier on Monday.
There was some controversy surrounding the Wells Fargo offering: The stock was delayed from opening for 50 minutes this morning so Goldman Sachs could allocate the 425 million shares, even though the books closed at 9 a.m. ET, which ticked off floor traders.
Dow component and NBC Universal parent General Electric told investors that it expects revenue to be flat next year — analysts expect it to be down about 10 percent — but said the "worst is behind us" in financial services.
Home Depot shares got a boost from President Obama, who spoke about economic-stimulus measures related to home improvement and energy efficiency at a Home Depot store in Alexandria, Va.
AIG shares slipped after CEO Robert Benmosche told the Wall Street Journal that top executives have been struggling financiallyafter the company's near collapse last year.
Boeing finally test-launched its 787 Dreamliner today, a year and a half after the fuel-efficient jet was supposed to hit the skies, but it didn't help the stock, which slipped 0.7 percent.
Best Buy beat earnings expectationsthis morning but its shares tumbled more than 8 percent as the electronics retailer's forecast fell short. Best Buy, like many retailers, has been cutting prices to lure shoppers, which has hurt its bottom line.
After the closing bell, we'll get results from software maker Adobe Systems .
Volume was light, with 1.18 billion shares changing hands on the New York Stock Exchange. Decliners outpaced advancers, roughly 3 to 2.
Utilities have been a breakout star this month: The Dow Jones utilities index is up nearly 7 percent month-to-date, its best performance since May 2003. Among the sector's selling points: Double the dividend yield at 4.3 percent, low interest rates and cheaper fuel prices.
And consumer discretionary is making a comeback: The sector is up more than 4 percent for the month.
At the bottom of the December pack are financials, energy and materials.
TUESDAY: GE annual outlook meeting; Fed's two-day meeting begins; producer prices; Empire State manuf. survey; industrial production; housing-market index; Earnings from Best Buy, Adobe
WEDNESDAY: Weekly mortgage apps; consumer prices; housing starts; current account; weekly crude inventories; Fed announcement; Earnings from Hovnanian
THURSDAY: Bank of Japan monetary policy meeting; Bernanke confirmation vote; weekly jobless claims; leading indicators; Philly Fed survey; Earnings from FedEx, Rite Aid, Oracle, Palm and RIMM
FRIDAY: Bank of Japan meeting continues; U.S. budget deadline; quadruple witching
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