2nd downer session for stocks
Major gauges tumble, led by Nasdaq, after economic reports revive worries about interest rates.
NEW YORK (CNNMoney.com) -- Stocks slumped Tuesday, falling for a second session on worries that inflationary signs in the day's economic news could mean the Federal Reserve's interest-rate hiking campaign may not be done yet.
The Dow Jones industrial average (down 59.95 to 11,125.73, Charts) slipped more than 0.5 percent. The broader Standard & Poor's 500 (down 5.74 to 1,270.92, Charts) index fell almost 0.5 percent.
The tech-heavy Nasdaq composite (down 29.48 to 2,061.99, Charts) tumbled 1.4 percent.
Treasury prices were little changed, while the dollar slipped versus other major currencies. Oil prices jumped; gold and other metals rallied as well.
Stocks fell Monday - after the previous week's big rally - on worries about oil prices and how much longer the Fed will keep raising rates, now that many believe the central bank is near the end of its 25-month old rate hiking campaign.
Such concerns remained front and center Tuesday, as investors focused on the inflationary signs in the morning's economic news and what that will mean for interest rates.
On a broader level, the issue for the stock market right now is "whether the economy will have a hard or soft landing, a recession or a slowdown," said Hugh Johnson, chief investment officer at Johnson Illington Advisors.
The answer depends in part on the Fed, Johnson said, and what it does at the next few policy meetings. As such, investors are reacting to any news that comes out that would seem to play a role in the central bank's decision, he added.
But Joshua Shapiro, chief economist at Maria Fiorini Ramirez Inc., said the economic reports and commentary of the past two days won't have much impact on the Fed decision next week. What the Fed will do remains a very close call, he said, as evidenced by comments Monday from two Fed officials.
Shapiro said that maybe Friday's August job report could tip the balance. "If you got a very weak or very strong report Friday, it could impact market expectations and also could incite more debate at the FOMC," Shapiro said, referring to the Federal Open Market Committee, the Fed's policy-making arm.
The Fed has raised the fed funds rate, an overnight bank lending rate, 17 straight times since June 2004 from 1 percent to 5.25 percent. Market watchers are unsure whether another quarter-point rate hike is on tap for the next Fed policy meeting, Aug. 8th.
Traders are now betting there's a 35 percent chance that the central bank will boost rates another quarter-point next week, down from a 43 percent probability in the early morning, according to futures contracts traded in Chicago.
The only economic report on tap for Wednesday is the weekly read on oil inventories. While that report will be noticed by the stock market, it won't play in to the ongoing debate about interest rates.
Earnings reports are due Wednesday morning from Dow component Procter & Gamble and CNNMoney.com parent Time Warner.
Another stock that is likely to be active Wednesday is CheckFree (Charts), which plunged 21 percent in extended-hours trading after reporting quarterly earnings and revenue that fell short of estimates.
The maker of software for online bill paying also warned that current quarter earnings and revenue will miss estimates.
Auto stocks came under pressure in afternoon trading, as Detroit carmakers reported sharp sales declines for July.
DaimlerChrysler (down $0.61 to $51.04, Charts), Ford Motor (down $0.09 to $6.58, Charts) and General Motors (down $0.93 to $31.30, Charts) all saw sales tumble from a year earlier, sending their stocks lower.
But it was tech stocks that got hit hardest Tuesday, with chips, computer hardware and networking stocks suffering the most.
The Philadelphia Semiconductor (down 8.23 to 404.53, Charts) index sank 2 percent, with all 19 of its components declining, including Intel (down $0.34 to $17.66, Charts), Broadcom (down $1.08 to $22.88, Charts) and National Semiconductor (down $0.70 to $22.56, Charts).
EMC (down $0.43 to $9.72, Charts) dipped more than 2 percent after brokerage Morgan Keegan downgraded it to "market perform" from "outperform," according to Briefing.com. EMC was one of many stocks dragging down the Goldman Sachs Hardware (down $6.09 to $309.11, Charts) index, off 1.9 percent.
Cisco Systems (down $0.40 to $17.48, Charts) and Ciena (down $0.13 to $3.50, Charts) dragged on the Amex Networking (down 4.10 to 199.61, Charts) index, down 2 percent.
Investors also sorted through the latest quarterly earnings reports.
Dow component Verizon Communications (down $0.55 to $33.27, Charts) reported quarterly earnings that fell from a year earlier and topped estimates. The shares slipped 1.6 percent.
Powerwave Technologies (down $1.41 to $6.53, Charts), a maker of amplifiers for wireless transmissions, reported second-quarter numbers that missed forecasts and warned on third-quarter earnings, sending its stock tumbling 17.8 percent in heavy Nasdaq trading.
Whole Foods Market (down $6.76 to $50.75, Charts) reported higher earnings on sales that missed estimates. The company also warned that full-year sales growth would likely fall on the lower end of its previous target. Shares slumped 11.8 percent.
On the upside, Qwest Communications (up $0.61 to $8.40, Charts) posted a quarterly profit versus a year-ago loss, sending shares around 7.8 percent higher.
A number of gold stocks rose as well, in tune with the price of the commodity. The Amex Gold Bugs (up $9.45 to $338.66, Charts) index rose 2.9 percent.
Market breadth was negative. On the New York Stock Exchange, losers beat winners by more than ten to seven as 1.65 billion shares changed hands. On the Nasdaq, decliners beat advancers by nearly three to one on volume of 1.71 billion shares.
Inflation pressures rise
June personal income rose 0.6 percent while spending rose 0.4 percent, in line with estimates.
But the report's core PCE deflator - an inflation measure closely watched by the Fed - rose 0.2 percent in June and is 2.4 percent year-over-year - the fastest pace since September 2002.
Also adding to rate worries: a bigger-than-expected jump in June construction spending and July manufacturing.
Construction spending jumped 0.3 percent in June to a record high, above what economists surveyed by Briefing.com were expecting.
The Institute for Supply Management's manufacturing index rose to 54.7 in July from 53.8 in the previous month. Economists thought it would dip to 53.5.
The ISM report's inflation gauge - the prices paid component - jumped to its highest level since October 2005, due to a jump in metal prices.
Treasury prices were little changed, after sliding in the morning on the economic news. The yield on the benchmark 10-year note stood at 4.97 percent, little changed from late Monday. Bond prices and yields move in opposite directions.
In currency trading, the dollar fell versus the yen and euro.
U.S. light crude oil for September delivery gained 51 cents to settle at $74.91 a barrel on the New York Mercantile Exchange.
COMEX gold for December delivery rose $12 to settle at $658.80 an ounce.