Inflation jitters pummel Wall Street
Dow loses almost 200 points as Bernanke comments, rising oil prices spark worries of slowing growth, rising prices.
NEW YORK (CNNMoney.com) - The Dow Jones industrial average tumbled nearly 200 points Monday after Federal Reserve Chairman Ben Bernanke cited concerns about inflation and slowing economic growth.
Rising oil prices also contributed to the drop, one of the worst on Wall Street so far this year.
The 30-share Dow (down 199.15 to 11,048.72, Charts) sank about 1.8 percent, making it the third-biggest percentage and point loss for the blue-chip index this year.
The broader Standard & Poor's 500 index (down 22.93 to 1,265.29, Charts) also lost 1.8 percent, while the Nasdaq composite (down 49.79 to 2,169.62, Charts) tumbled 2.2 percent, dragged down by chip stocks.
Both the S&P 500 and tech-fueled Nasdaq posted their second-biggest percentage and point declines for the year.
With Monday's declines, the Dow has now lost nearly 600 points since the Fed's last meeting on May 10 - when the blue-chip index came about 80 points within reach of its all-time high.
Since then, a fresh wave of inflation concerns, as well as worries that the Fed might raise interest rates too high and choke off economic growth, have pressured the market.
"Given recent developments, the medium-term outlook for inflation will receive particular scrutiny," Bernanke said in remarks at a monetary conference in Washington (Full story.)
The Fed chairman, who took the helm at the central bank from Alan Greenspan on Feb. 1, also said the economy is starting to slow, as expected. (Full comments from Bernanke.)
Stocks, which had been lower, fell further after the comments, which raised concerns that the Fed will raise rates again when it meets June 28-29.
According to rate futures on the Chicago Board of Trade, investors were betting on a 74 percent chance of another quarter-point hike at that meeting after Bernanke's comments, up from 42 percent late Friday.
Bernanke's comments also reinforced ongoing concerns that the economy is losing momentum while inflation pressures are heating up.
"Low economic growth combined with rising inflation is lethal for the stock market," said Michael Metz, chief investment strategist at Oppenheimer.
Despite the recent downturn, the Dow is still up 3.1 percent for the year, and the S&P 500 is up 1.4 percent. The Nasdaq, however, has erased its gains and is down 1.6 percent for the year.
Monday's sell-off could attract some investors seeking bargains back into the market, said Art Hogan, chief market analyst at Jefferies and Co., but he added the selling could just as well continue.
No economic reports are on tap for Tuesday. As of 5:15 p.m. ET, Nasdaq and S&P futures pointed to a modestly higher opening for stocks.
Surging oil prices and a declining dollar - both considered harbingers of inflation - triggered the stock selloff early Monday.
Oil prices surged after Iran's supreme leader, Ayatollah Ali Khamenei, warned the United States on Sunday that any "misbehavior" directed at Iran would serve to disrupt Gulf energy shipments.
At the same time, a report issued Monday on the service sector, which accounts for about 70 percent of the U.S. economy, reinforced concerns about slowing economic growth.
The Institute for Supply Management's services index declined to 60.1 in May, falling in line with analysts' expectations. The prices paid index included in the survey, however, surged to 77.5 from 70.5.
Worries over slowing economic growth dominated the market Friday, when the May jobs report came in well below expectations.
"A stagflation scenario, where you've got [economic] slowdown and inflation, is what you'll hear people talking about in the coming days and weeks," said Larry Peruzzi, senior equity trader at Boston Company Asset Management.
Twenty-nine out of 30 Dow components finished the session in the red. Economically sensitive issue Alcoa (down $1.19 to $31.38, Research), which lost 3.7 percent, was the biggest loser on the Dow, while Disney (up $0.12 to $30.74, Research) was the lone advancer.
Elsewhere, a study released over the weekend showed Pfizer's (down $0.25 to $23.94, Research) anti-cancer drug, Sutent, shrank tumors and stopped them from spreading in the lungs and kidneys of patients. Shares rose early on the news before turning lower.
Home builders, already under pressure after residential home builder Standard Pacific (down $2.57 to $27.43, Research) warned Friday about softening demand in the real estate sector, sank further on Bernanke's comments.
Despite the gain in crude prices, oil stocks were mostly lower. The Amex Oil (down $30.22 to $1,092.33, Research) index and Philadelphia Oil Service Sector (down $8.07 to $211.30, Research) index both lost more than 2 percent.
In corporate news, the Wall Street Journal, reported over the weekend that the New York Mercantile Exchange (NYMEX) is in serious discussions with TSX Group Inc., owner of the Toronto Stock Exchange, about forming an alliance and possibly acquiring TSX's Natural Gas Exchange.
Market breadth was negative. On the New York Stock Exchange, losers beat winners by a margin of four to one as 1.62 billion shares changed hands. On the Nasdaq, decliners topped advancers also by a margin of four to one on volume of 1.75 billion shares.
U.S. light crude oil for July delivery rose as high as $73.40 during the session before pulling back. The front-month contract rose 27 cents to settle at $72.60 a barrel on the New York Mercantile Exchange, extending Friday's nearly 3 percent gain.
The dollar also plunged to a one-year low versus the euro, but pulled back following Bernanke's remarks. The greenback also edged higher versus the yen.
Treasury prices fell, raising the yield on the benchmark 10-year note to 5.02 percent, up from 5 percent late Friday. Treasury prices and yields move in opposite directions.
COMEX gold for August delivery rose $7 to settle at $648 an ounce.