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Stocks mixed after inflation worries persist { April 2006 } Original Source Link: (May no longer be active)
http://www.forbes.com/business/services/feeds/ap/2006/05/16/ap2750521.htmlhttp://www.forbes.com/business/services/feeds/ap/2006/05/16/ap2750521.html
Associated Press
Stocks Mixed As Inflation Worries Persist
By CHRISTOPHER WANG , 05.16.2006, 01:28 PM
Stocks turned mixed Tuesday after surging wholesale prices sparked inflation worries even though signs of a moderating economy bolstered views that the Federal Reserve could be near the end of its rate tightening.
The Labor Department's producer price index showed that high energy costs have not yet affected core wholesale prices - without energy and food - which grew a lower-than-expected 0.1 percent in April. However, the market was fixated on the 0.9 percent jump in overall PPI, ahead of estimates for 0.8 percent and adding to concerns that energy costs will inevitably drive other prices higher.
A drop in new-home construction also fed hopes that economic growth is tapering and could bring an end to the Fed's rate hikes. But a strong reading on industrial activity and capacity utilization kept investors on edge.
"When you add up all the numbers, the economy is doing well, but there's still a hint of inflation around," said Larry Wachtel, a market analyst for Wachovia Securities. "I can't really say anything today would persuade the Fed to stop raising rates in June."
The day's mixed economic numbers muddled the outlook for interest rates and countered excitement over solid earnings from Wal-Mart Stores Inc., stable oil prices and a rebound in bonds. Investors were already looking ahead to Wednesday's report on consumer prices for more clarity about the inflation picture.
In early afternoon trading, the Dow Jones industrial average gained 9.53, or 0.08 percent, to 11,438.30, after briefly dipping into negative territory.
Broader stock indicators were lower. The Standard & Poor's 500 index slipped 0.22, or 0.02 percent, to 1,294.28, and the Nasdaq composite index fell 8.43, or 0.38 percent, to 2,230.09.
In the bond market, the yield on the 10-year Treasury note dropped to 5.11 percent from 5.16 percent late Monday.
Meanwhile, the U.S. dollar lost ground to the Japanese yen and was little changed against European currencies. Gold prices recovered after falling to $685 an ounce in the prior session.
Crude futures returned to $70 a barrel following two days of selling, and as the market awaited the government's weekly inventory update on Wednesday. A barrel of light crude added 94 cents to $70.35 on the New York Mercantile Exchange.
While Wall Street is always sensitive to economic data, investors have been particularly anxious since the Fed said last week that it might pause in its program of interest rate hikes if economic conditions warrant it. One of the Fed's primary concerns is keeping inflation in check, so any signs of rising prices or a too-robust economy is likely to unnerve the stock market.
The Commerce Department said housing starts dropped 7 percent to 1.85 million in April - below estimates of 1.95 million - as rising mortgage rates showed signs of tempering demand. The number of building permits also fell 5 percent to 1.98 million.
But a Fed report that industrial production increased 0.8 percent last month renewed some worries about strong growth driving inflation, coming in ahead of forecasts for 0.5 percent. Capacity utilization of 81.9 percent was up slightly from 81.4 percent a year ago.
Aside from the economic numbers, earnings news dominated the day's headlines. Home Depot Inc. said profit climbed 19 percent in the first quarter, although its sales came in shy of Wall Street estimates. Home Depot fell $1.44 to $39.06.
Wal-Mart Stores Inc. posted a modest 6 percent rise in quarterly income, beating analysts' target by 2 cents per share. Its sales also edged up 12 percent to match expectations. Wal-Mart was up 54 cents at $47.97.
Advancing issues were even with decliners on the New York Stock Exchange, where volume of 897.3 million shares lagged the 945.2 million shares changing hands at the same point Monday.
The Russell 2000 index of smaller companies added 0.33, or 0.04 percent, to 737.97.
Overseas, Japan's Nikkei stock average slumped 1.99 percent. Britain's FTSE 100 rose 0.08 percent, Germany's DAX index lost 0.09 percent and France's CAC-40 was higher by 0.33 percent.
Copyright 2006 Associated Press.
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