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Stocks close down amid inflation concerns

Wall Street skidded lower Thursday as investors grappled with concerns about the strength of consumer spending and the overall economy.
/ Source: The Associated Press

Wall Street skidded lower Thursday as investors grappled with concerns about the strength of consumer spending and the overall economy after downbeat comments from J.C. Penney Co. and Wells Fargo & Co.

Investors soured on retailers and banks, while falling oil prices hurt shares of energy companies.

Wall Street is concerned about rising gas prices. Although oil has come off the highs seen last week, prices remain elevated and could crimp consumer spending as the all-important holiday shopping season approaches.

“The J.C. Penney comments in terms of their guidance have sort of put another nail in retail. The assumption is the consumer has given up,” said Charlie Smith, chief investment officer at Fort Pitt Capital Group in Pittsburgh. “Three-dollar to $3.20 a gallon gas and house prices falling at 5 percent a year is really a double-whammy the consumer can’t overcome.”

Wells Fargo president and chief executive John Stumpf said the housing market is seeing its steepest decline since the Great Depression. The bank has boosted its loss provisions in recent quarters to cover increasing defaults on mortgages and home-equity products. Still, the company has been able to avoid big writedowns that other banks have faced because it has little exposure to some complex financial instruments such as mortgage-backed securities that have recently soured.

Investors also reacted to a Barron’s report late Wednesday that a General Electric Asset Management bond fund has suffered losses in mortgage-backed securities. The General Electric Co. unit is offering investors the option to redeem their holdings in the short-term institutional bond fund at 96 cents on the dollar. The losses in the bond fund raised concerns that the squeeze on credit markets could spread and hurt small investors.

Barclays Group said its Barclays Capital investment unit became the latest financial institution to book a writedown on losses stemming from turbulent credit markets. The business took a $2.7 billion charge in the third quarter but the also said Thursday its profit beat last year’s strong performance.

The Dow Jones industrial average fell 120.96, or 0.91 percent, to 13,110.05.

Broader stock indicators also declined. The Standard & Poor’s 500 index fell 19.43, or 1.32 percent, to 1,451.15. The Nasdaq composite index fell 25.81, or 0.98 percent, to 2,618.51.

Government bond prices rose. The yield on the 10-year Treasury note, which moves opposite its price, slid to 4.16 percent from 4.25 percent late Wednesday.

Oil prices slipped on the New York Mercantile Exchange, where a barrel of light, sweet crude fell 66 cents to settle at $93.43 after domestic crude oil and gasoline inventories rose more than expected last week and OPEC forecast fourth-quarter demand for oil would be less than expected. Gold prices fell as the dollar strengthened.

In economic news, the Labor Department said Thursday its Consumer Price Index rose 0.3 percent in October on high energy and foods costs, in line with September’s increase and analysts’ forecast.

Robert A. Dye, senior economist at PNC Financial Services Group, is concerned that readings on consumer prices and Wednesday’s report on producer prices indicate the economy could start to feel pressure in coming months from higher energy costs as well as a weakening dollar.

“This number tells us that we might be concerned that the Fed might not have the leeway we thought it had a few months ago to ease the fed funds rate,” he said, referring to the CPI report and the Fed’s efforts to keep inflation in check.

Investors were troubled by corporate news. J.C. Penney reported a 9 percent drop in fiscal third-quarter profit on weak sales and cut its fourth-quarter outlook, indicating that housing market problems are taking a toll on shoppers, as well. J.C. Penney fell $2.40, or 5.1 percent, to $44.33.

Wells Fargo fell $1.28, or 3.9 percent, to $31.97. Among other financial companies, Citigroup Inc. fell $1.46, or 4.1 percent, to $34.58, while Lehman Brothers Inc. fell $2.48, or 3.8 percent, to $62.97.

Barclays Group fell 88 cents, or 2 percent, to $43.

Exxon Mobil Corp. fell $1.82, or 2.1 percent, to $84.49, while other energy companies also lost ground. ConocoPhillips fell $1.33 to $78.04.

GE fell 70 cents to $38.31.

Ralcorp Holdings Inc., a maker of private-label cereals, said it will buy Kraft Food Inc.’s Post cereals division for $1.65 billion plus $950 mllion in debt.

Kraft fell 61 cents to $32.37, and Ralcorp rose $5.77, or 10.4 percent, to $61.24.

Declining issues outnumbered advancers by more than 3 to 1 on the New York Stock Exchange, where volume came to 1.47 billion shares compared with 1.56 billion shares traded Wednesday.

The Russell 2000 index of smaller companies fell 10.87, or 1.39 percent, to 771.60.

Major stock indexes overseas slumped. Britain’s FTSE 100 declined 1.13 percent, Germany’s DAX index fell 1.49 percent, while France’s CAC-40 shed 0.93 percent.

Japan’s Nikkei stock average closed down 0.67 percent and Hong Kong’s Hang Seng index fell 1.42 percent.