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NEW YORK (CNN/Money) -
Stocks slumped Tuesday as worries about rising interest rates and inflation weighed on homebuilders, oil stocks and a variety of other sectors, overshadowing positive earnings news.
As of 5:30 p.m. ET, Nasdaq and S&P futures pointed to a modestly weaker open for stocks Wednesday, when fair value is taken into account.
The Standard & Poor's 500 (down 11.96 to 1,178.14, Charts) index lost 1 percent. The Dow Jones industrial average (down 62.84 to 10,285.26, Charts) gave back 0.6 percent and the Nasdaq composite (down 14.30 to 2,056.00, Charts) lost 0.7 percent.
Small cap stocks, as measured by the Russell 2000 (down 8.01 to 625.36, Charts), fell almost 1.3 percent.
Stocks had been stable through the early afternoon as investors weighed strong earnings from 3M, IBM and others, versus the implications of a report showing a big jump in wholesale prices.
But the scale tipped in favor of inflation worries in the midafternoon, and stocks were pulled lower through the close. Among decliners, oil stocks and homebuilders were hit particularly hard.
After the close of trade, Intel (Research) reported higher quarterly earnings that topped forecasts on higher revenues that were in line with forecasts. The company also issued a current-quarter revenue forecast that sets the midpoint below analysts' targets, sending shares lower after the bell.
Yahoo! (Research) reported flat quarterly earnings after the close that nonetheless topped estimates. The company also reported higher revenue that topped estimates. The strength in the quarter was attributed to improved advertising revenue. Shares edged higher in extended-hours trading.
Also after the close, mobile phone maker Motorola (Research) reported higher quarterly earnings that rose from a year ago, thanks to strong sales of its phones. Shares gained 3 percent in extended-hours trade.
Earnings are due Wednesday morning from a slew of potentially market-moving companies, including Dow 30 components Altria (Research), Honeywell (Research), JP Morgan Chase (Research), McDonald's (Research) and SBC Communications (Research).
Economic reports are also due before the start of trade on housing starts and building permits.
Feeling the impact of high energy prices
The Producer Price Index, a measure of inflation at the wholesale level, showed the biggest month-to-month jump in 15 years, the government reported Tuesday morning. The jump was largely related to skyrocketing energy costs, and surpassed the forecasts of Wall Street economists.
Excluding volatile food and energy costs, the so-called "core" PPI rose 0.3 percent in September, versus an unchanged reading in August. Economists thought it would rise 0.2 percent.
Investors have been sensitive to signs that the jump in energy prices is being passed on to the consumer, and the "core" read seemed to play into that.
"The inflation story has been the ongoing story for the markets since the Fed raised rates at the September meeting," said Barry Hyman, equity strategist at Ehrenkrantz King Nussbaum.
In September the central bank boosted the Fed funds rate, an overnight bank lending rate, to 3.75 percent, the 11th rate hike in a row.
"However, we are entering the earnings reporting period, where a few factors could offset that," he said. "Namely, the perception that energy prices have peaked and expectations of strong earnings from the tech sector."
Roughly 25 percent of the S&P 500 reports quarterly earnings this week.
Oil prices and stocks slide
U.S. light crude oil for November delivery fell $1.16 to settle at $63.20 a barrel on the New York Mercantile Exchange Tuesday, on relief that Hurricane Wilma is not likely to hit rigs and refineries along the U.S. Gulf Coast.
Rather than soothe the broader stock market, the fall in oil prices instead gave traders an incentive to cash out of energy, the best-performing sector of 2005.
Exxon Mobil (down $2.56 to $56.30, Research) fell 4.3 percent and led the list of stocks pulling down the Amex Oil (down 40.07 to 941.17, Charts) index by more than 4 percent.
Homebuilders also slumped across the board on bets that rising interest rates would hurt the housing market. The Philadelphia Housing (down $15.58 to $473.32, Research) index fell 3.2 percent.
Stocks gained modestly Monday, led by blue chips, as investors welcomed General Motors' deal with its union and a positive court ruling for Altria.
Both stocks suffered profit taking Tuesday, with Dow 30 components GM (down $0.97 to $29.12, Research) and Altria each losing over 3 percent.
Among Dow decliners, economically-sensitive issues like Caterpillar (down $1.07 to $53.96, Research) and Honeywell (down $0.44 to $35.93, Research) fell, too.
3M, IBM offer strong earnings
3M (up $2.24 to $74.71, Research) reported higher quarterly earnings that beat estimates on strong demand for its security and industrial products. The company also set a full-year forecast in line with estimates and said its board approved the repurchase of an additional $300 million of stock through the end of January.
Shares gained 3.1 percent.
IBM (up $0.89 to $83.48, Research) reported quarterly earnings late Monday that rose from a year earlier and topped forecasts. Additionally, revenue fell from a year earlier and missed forecasts. However, investors focused on the positive and sent shares higher Tuesday morning. Shares gained 1.1 percent.
Johnson & Johnson (down $0.03 to $62.97, Research) reported higher quarterly earnings that beat forecasts and higher revenue that missed forecasts as strong sales of medical devices overshadowed weaker prescription drug sales.
J&J also modestly lifted its full-year earnings-per-share target. Shares were little changed.
United Technologies (down $1.16 to $49.95, Research) reported higher quarterly earnings and revenue Tuesday morning that topped forecasts and boosted its full-year outlook. Yet investors took a sell-the-news approach and sent the stock 2.3 percent lower.
Chip gear maker Novellus Systems (down $3.06 to $21.83, Research) reported lower quarterly earnings late Monday missed forecasts, reflecting an industry-wide slump. Shares slumped 13 percent in active Nasdaq trade.
Other chips fell, too. The Philadelphia Semiconductor (down 5.42 to 439.30, Charts) index, or the SOX, lost 1.2 percent.
Market breadth was negative. On the New York Stock Exchange, losers beat winners by more than twelve to five on volume of 1.62 billion shares. On the Nasdaq, decliners topped advancers by more than two to one on volume of 1.48 billion shares.
Treasury prices rose, lowering the yield on the 10-year note to 4.47 percent from 4.49 percent late Monday. Treasury prices and yields move in opposite directions.
The dollar rose versus the euro and yen.
COMEX gold fell $2 to settle at $474.60 an ounce.
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