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NEW YORK (CNN/Money) -
Stocks slumped Monday after comments from a Federal Reserve official revived worries about inflation and rising interest rates.
As of 6 p.m. ET, Nasdaq and S&P futures pointed to a mostly flat open for stocks Wednesday, when fair value is taken into account.
The Dow Jones industrial average (down 94.37 to 10,441.11, Charts) lost 0.9 percent, the broader Standard & Poor's 500 (down 12.23 to 1,214.47, Charts) index lost 1 percent and the Nasdaq composite (down 16.07 to 2,139.36, Charts) lost 0.75 percent.
The Nasdaq composite rose through the early afternoon as investors welcomed falling oil prices and a strong reading on factory orders. Any advance was limited, however, by the session's spate of quarterly earnings warnings.
The tone turned more negative in the midafternoon, amid anxiety about the economy in the wake of two hurricanes and prolonged higher energy prices.
Stocks were hit hardest in the late afternoon after Dallas Fed President Richard Fisher said the central bank needed to be vigilant in fighting off higher inflation, which triggered worries that the Fed's rate-hike campaign won't be ending anytime soon.
"It sounds like he's sort of reaffirming what a lot of the Fed officials have been saying, which is that they are more worried about inflation than slowing growth," said Joshua Shapiro, chief U.S. economist at Maria Fiorini Ramirez Inc.
"They seem to be feeling more comfortable that they can resume their path of rate hiking, now that the immediate aftermath of the hurricanes is over and some of the economic reports are showing that the economy seems to be doing OK," he added.
A strong read on manufacturing Monday and factory orders Tuesday added to bets that the economy continues to hold up.
Monday's manufacturing report was particularly notable in that it covered the period post-hurricanes Katrina and Rita, surprising investors betting on weaker September activity as a result of the storms.
Wednesday brings a September reading on the services sector of the economy as well as the weekly oil inventories report. Friday brings the September jobs report.
After the close, Mercury Interactive (Research) warned that third-quarter revenue will miss forecasts, due to customer delays. The software maker also said a previously disclosed Securities and Exchange Commission probe into its stock-based compensation has now become a formal investigation.
U.S. light crude for November delivery fell $1.57 Tuesday to settle at $63.90 a barrel on the New York Mercantile Exchange, after sliding as low as $63 earlier.
A drop in oil prices on the day is helpful short term, noted John Hughes, market analyst at Shields & Co. "But it doesn't change the fact that longer term, there are worries about higher inflation and higher interest rates."
What moved?
Declines were broad based, with 23 out of 30 Dow stocks falling.
Dow stock Exxon Mobil (down $1.94 to $60.55, Research) was the biggest loser, falling along with the broader oil sector. The Amex Oil (down 35.15 to 1,039.04, Charts) index lost 3 percent.
Microsoft (down $0.52 to $24.98, Research) eased 2 percent on a Wall Street Journal report that it has broken off negotiations with the four major music labels, throwing into question the company's plan to start a subscription-based music service to compete with Apple (down $0.69 to $53.75, Research)'s iTunes.
General Motors (down $0.96 to $30.08, Research) lost 3 percent one day after reporting a 24 percent slide in September auto sales. On Tuesday, ratings agency Standard & Poor's cautioned that it could cut GM's debt rating deeper into junk status.
Dow component Procter & Gamble (down $1.23 to $58.08, Research) slipped after Citigroup downgraded it to a "hold," citing higher raw material costs.
Other Dow losers included Alcoa (down $0.51 to $23.36, Research), Caterpillar (down $1.23 to $57.78, Research), McDonald's (down $0.99 to $32.88, Research) and United Technologies (down $1.27 to $50.43, Research).
Toll Brothers (down $2.25 to $41.40, Research) led the list of homebuilders sliding after a report that insiders at some of the companies have increased their stock sales. The Dow Jones Home Construction (down $41.02 to $931.37, Research) index fell 4.2 percent.
A number of companies also issued profit warnings, as is typical in the first weeks of a new quarter.
Lexmark International (down $17.44 to $43.50, Research) slumped after warning that third-quarter profits would suffer amid lower revenue from laser and inkjet printer supplies. The computer printer manufacturer said that the weakness would likely stretch into the fourth quarter.
Clorox (down $0.77 to $53.81, Research) dipped after warning that fiscal second-quarter and full year earnings would miss forecasts, due to higher energy costs and the impact of the recent hurricanes.
Market breadth was negative. On the New York Stock Exchange, losers beat winners two to one on volume of 1.72 billion shares. On the Nasdaq, decliners beat advancers 3 to 2 on volume of nearly 2.03 billion shares.
Treasury prices gained modestly, lowering the yield on the 10-year note to 4.37 percent from 4.38 percent late Monday. Treasury prices and yields move in opposite directions.
The dollar fell versus the euro and gained versus the yen.
COMEX gold ended the session unchanged at $469.30 an ounce, recovering from an earlier selloff.
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