NEW YORK (CNN/Money) -
Blue-chip stocks sank to new lows for the year on Wednesday as inflation worries returned to haunt Wall Street, overshadowing the latest upbeat earnings news.
The Dow Jones industrial average (down 115.05 to 10,012.36, Charts) tumbled around 115 points, falling for the fifth of the last six sessions, and closing at its lowest point since Oct. 28, 2004.
The broader Standard & Poor's 500 (down 15.28 to 1,137.50, Charts) index sank about 1.3 percent, falling to its lowest point since Nov. 2, 2004.
The tech-fueled Nasdaq composite (down 18.60 to 1,913.76, Charts) lost about 1 percent.
Worries about a slowing economy pummeled stocks late last week, with the Dow recording its worst week in more than two years. That marked a dramatic shift from the first quarter when investors had been worried about an over-heating economy and rising oil prices stoking inflation.
But inflation woes returned front and center Wednesday, following the higher-than-expected consumer price index reading for March and the afternoon release of the Fed's "Beige Book" survey of economic conditions.
Upbeat earnings from Caterpillar and Intel early Wednesday lifted those stocks, but couldn't help a market worried about the broader outlook for the economy.
"Inflation is rearing its ugly head again, driving today's sentiment and overshadowing the earnings news," said Bryan Piskorowski, market analyst at Wachovia Securities.
"I think the market generally understands that earnings growth is decelerating," he added. "The widely disputed topic is when does the Fed stop raising rates."
After the close, online auctioneer eBay (up $0.94 to $33.11, Research) reported quarterly earnings that rose from a year ago and topped estimates, on sales that rose from a year ago and were in line with estimates. The stock was volatile after hours, hovering near unchanged as of 5:30 p.m. ET.
Earnings on tap for Thursday morning include BellSouth, Delta Air Lines, Jetblue Airways, McDonald's, Merck, Nokia, Schering-Plough and UPS.
Thursday also brings reads on weekly jobless claims, leading economic indicators for March, and at noon, the Philadelphia Fed index for April, a regional manufacturing read.
CPI, Beige Book unnerve
The Consumer Price Index jumped 0.6 percent in March after climbing 0.4 percent in February -- above forecasts for a 0.5 percent rise.
More significantly, the so-called "core" CPI, which strips out volatile food and energy prices, rose 0.4 percent -- the biggest advance in more than 2-1/2 years and double economists' average forecasts.
Meanwhile, the Fed's Beige Book survey of economic conditions showed business expansion continuing but also increased pricing pressure.
Last week, worries about a slowing economy moved to the forefront, pushing inflation jitters aside, and blue chips had their worst week in two years.
But now inflation worries have returned, and the sense that investors will see everything as bad news is part of what's restraining the market, said Barry Hyman, stock strategist at Ehrenkrantz King Nussbaum.
"You continue to have investors weighing strong earnings -- in this case Yahoo! and Intel -- versus the fear of inflation again," Hyman added.
Treasury prices cut losses and managed to turn higher by the close, setting the 10-year note yield at 4.19 percent, down from 4.20 percent late Tuesday. Bond prices and yields move in opposite directions.
U.S. light crude oil for May delivery spiked after the weekly inventory report but then see-sawed across the unchanged line, ultimately settling at $52.44 a barrel, up 15 cents on the New York Mercantile Exchange.
Earnings impress, but ...
About 150 S&P 500 companies report results this week.
Of those that have reported results so far, most of the news has been upbeat. However, "the market is looking ahead," Hyman added. "It's looking to the second half of the year and to 2006, and there is a concern."
Intel reported higher-than-expected first-quarter earnings and sales late Tuesday, and also issued a second-quarter sales forecast that was in line with expectations. Intel (up $0.03 to $22.66, Research) shares initially rose more than 2.5 percent, but ended the session just barely higher.
While the report was a relief for a tech sector that was shaken a week earlier by IBM (down $3.47 to $72.01, Research)'s earnings miss, the report failed to spark a sustained round of tech buying.
IBM continued to erode, losing 4.6 percent and dragging on the Dow.
Also late Tuesday, Yahoo! reported improved quarterly earnings that rose from a year earlier. The Internet leader also boosted its guidance for the current quarter and fiscal year. Yahoo! (up $1.43 to $34.65, Research) shares managed to gain.
Dow component Caterpillar (up $3.09 to $88.04, Research) reported earnings and sales for the first quarter that rose from a year ago and topped estimates. The company also said fiscal-year 2005 revenue will grow more than expected. The stock rose 3.6 percent and was the Dow's best performer.
Fellow Dow component United Technologies (up $0.77 to $99.04, Research) also reported strong quarters early Wednesday, and saw its stock rewarded.
But Dow component Altria (down $1.37 to $62.75, Research) slipped after reporting quarterly sales and earnings that rose from a year ago and beat expectations.
Most Dow stocks were lower, with 27 out of 30 showing declines, including economically sensitive stocks such as Alcoa (down $0.49 to $28.90, Research), Honeywell (down $1.07 to $35.43, Research) and General Motors (down $0.27 to $25.82, Research).
The homebuilding sector, also sensitive to a rising rate environment, tumbled as well.
Exxon Mobil (down $1.49 to $57.14, Research) fell 2.5 percent, falling with others in the oil sector. The Philadelphia Oil Service Sector (Charts) index lost 1.5 percent.
Avaya (down $2.68 to $8.01, Research) tumbled 25 percent in active New York Stock Exchange trading after the maker of tech gear for Internet phone calls reported lower quarterly earnings and warned that it won't meet its previous revenue forecast for fiscal 2005.
Market breadth was negative. On the New York Stock Exchange, losers beat winners by three to one as 1.77 billion shares changed hands. On the Nasdaq, decliners topped advancers by more than two to one on volume of 2.04 billion shares.
In currency trading, the dollar fell versus the euro and was little changed versus the yen.
COMEX gold rose $2.30 to settle at $436.70 an ounce.
In global trade, Asian-Pacific stocks ended higher and European shares ended mostly lower.