Wall Street fell Monday in an erratic session dominated by worries about inflation — which were somewhat soothed by a plunge in oil prices that took crude to its lowest level in three months.
Light, sweet crude closed down $3.69, or 2.9 percent, to settle at $121.41 a barrel on the New York Mercantile Exchange after Tropical Storm Edouard seemed unlikely to threaten oil and natural gas facilities in the Gulf of Mexico. Oil has now fallen nearly $26, or 17.6 percent, since it reached a trading high of $147.27 on July 11; Monday’s close was its lowest since it settled at $120.36 on May 5.
Oil’s retreat was welcome news to a stock market that initially sold off after the Commerce Department said an inflation gauge tied to consumer spending had surged 0.8 percent in June, reflecting higher gasoline prices. That was the biggest jump in the indicator since it gained 1 percent in February 1981.
The data came in the department’s report on consumer spending, which fell 0.2 percent in June after removing the effects of higher prices. The report fed investors’ growing concerns about the impact of rising prices on consumers, whose spending is the lifeblood of the economy.
Richard E. Cripps, chief market strategist for Stifel Nicolaus, said the economic readings Monday reinforced the negative sentiment in the markets globally. While the Federal Reserve will hold a regularly scheduled policy meeting on Tuesday, he said investors don’t expect much from the session that will help an economy stymied by higher prices and the continuing housing slump.
“I don’t think that the Fed can really pull any of its levers to create a short-term fix,” he said. “To go higher, I think we need the sentiment to change with lower energy prices. Crude oil dropping below the $117 area certainly would provide a very visible benefit in terms of the economy but it also makes the problems seems a little bit less severe.”
The Dow Jones industrial average fell 42.17, or 0.37 percent, to 11,284.15 as energy and materials stocks declined following a broad drop in commodities. The Dow had been down more than 100 points in early trading.
Broader stock indicators showed steeper declines. The Standard & Poor’s 500 index fell 11.30, or 0.90 percent, to 1,249.01, and the Nasdaq composite index declined 25.40, or 1.10 percent, to 2,285.56.
Many investors appeared to trade cautiously ahead of the Fed’s meeting. The central bank is expected to keep interest rates steady at 2 percent, given recent lackluster readings on the economy. Inflation rose sharply for businesses in June as they paid higher prices for commodities, but it appears to have eased in July as the price of oil retreated in the second half of the month. That might take pressure off the Fed to raise rates as a means of containing inflation.
The market will be keenly interested in the Fed’s economic assessment statement that will accompany its rate decision; the central bank routinely uses the statement to at least hint at its bias toward future rate moves.
Bond prices fell. The yield on the benchmark 10-year Treasury note, which moves opposite its price, rose to 3.97 percent from 3.94 percent late Friday. The dollar rose against other major currencies, while gold prices fell.
Investors seemed unmoved by a Commerce Department report that orders to U.S. factory jumped at the fastest pace in six months in June. The report reflected increases in petroleum prices and heavy demand for military equipment. Orders rose by 1.7 percent in June, more than double what had been expected. It was the biggest gain since December.
Steven Goldman, chief market strategist at Weeden & Co., said the up-and-down trading since Wall Street’s recent lows are part of a necessary process as the market searches for a bottom.
“We’re kind of going through a period of healing and trying to maybe etch out some kind of bottom,” he said. “A lot of times you just don’t reach a bottom and go straight up.”
Goldman pointed to encouraging signs like drops in commodities beyond oil as well as declines in the number of stocks hitting new lows.
Meanwhile, U.S. corporate earnings reports for the second quarter are still arriving. Cisco Systems Inc., News Corp. and Procter & Gamble Co. are scheduled to report results Tuesday.
Cisco ended unchanged at $21.99, News Corp. advanced 17 cents to $14.57 and P&G rose 87 cents to $65.82.
Exxon Mobil Corp. skidded $3.12, or 3.91 percent, to $76.60, while Chevron Corp. slipped $1.51, or 1.79 percent, to $82.80, reacting to the drop in oil prices.
Declining issues outnumbered advancers by about 2 to 1 on the New York Stock Exchange, where consolidated volume came to a relatively light 4.39 billion shares, down from 4.54 billion shares traded Friday.
The Russell 2000 index of smaller companies fell 12.02, or 1.68 percent, to 704.14.
Overseas, Japan’s Nikkei stock average fell 1.23 percent. Britain’s FTSE 100 fell 0.64 percent. Germany’s DAX index fell 0.73 percent, and France’s CAC-40 lost 0.78 percent.