Stocks fell sharply Tuesday, as a number of companies warned of profit shortfalls and higher costs, some of which could be passed along to consumers. Concerns over interest rates also pressured stocks after a Federal Reserve official signaled more increases for the future.
The markets were higher in the early part of the session as investors welcomed a decline in crude oil futures, prompted by news that the government could release heating oil reserves to help combat higher heating costs as winter approaches.
Yet the specter of inflation quickly overcame any advances. Procter & Gamble Co.’s stock was downgraded due to higher raw material prices, and Clorox Co. blamed high energy costs for an expected earnings shortfall and increases in the retail prices of its products, which could exacerbate Wall Street’s inflation fears.
Inflation concerns were heightened as Dallas Federal Reserve Bank President Robert Fisher said inflation was nearing the high end of the Fed’s comfort zone — a clear signal that the Fed will continue raising interest rates.
The Dow Jones industrial average finished the day down 94.37 points, or 0.9 percent, while the broader Standard & Poor’s 500-stock index slid 12.23 points, or 1 percent. The Nasdaq composite index, full of technology stocks, fell 16.07 points, or 0.8 percent.
Energy stocks, which have been a market leader for much of the year, led decliners as investors, particularly hedge funds, moved out of oil stocks and into the healthcare and technology sectors.
“You’re seeing the fast money shift around a bit, and short-term, that’s good for stocks,” said Ken Tower, chief market strategist for Schwab’s CyberTrader. “Longer-term, you have to consider that, at some point, energy prices are going to catch up to the economy and the market.”
A Commerce Department report on factory orders failed to prop up stocks, even though August factory orders surged 2.5 percent, compared to a 2.5 percent drop in orders in July. Those figures did not include the impact of hurricanes Rita and Katrina and the subsequent jumps in energy and raw material costs.
Higher energy prices prompted Clorox Co. to slash its profit outlook for the second quarter as well as the full fiscal year. The household product maker also announced a 40 percent hike in prices to offset those higher costs. Clorox dropped 77 cents to $53.81.
Procter & Gamble was downgraded to “hold” from “buy” at JP Morgan Securities due to concerns over higher raw material prices, which were blamed in part on energy costs. P&G shares fell $1.23 to $58.08.
Lexmark International Inc. tumbled 29 percent, or $17.44 to $43.50 after an unexpected drop in revenue prompted the printer maker to cut its third-quarter profit estimates in half. The company, which had heavily discounted its products during the quarter, also said fourth-quarter profits could be lower than expected.
Microsoft Corp. fell 52 cents to $24.98 after The Wall Street Journal reported the software company ended talks with four major music labels regarding its own online music venture, a business dominated by Apple Computer Inc.’s iTunes. Apple rose 69 cents to $53.75.
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Shares of Sun Microsystems Inc. climbed 1 cent to $4.20 after the company said it will announce a collaboration with Google Inc. later in the day. While details were not available, analysts speculated it could be a deal for Sun’s new Galaxy servers. Google slipped $7.68 to $311.
Overseas, Japan’s Nikkei stock average rose 1.58 percent. In Europe, Britain’s FTSE 100 closed down 0.13 percent, France’s CAC-40 rose 0.6 percent and Germany’s DAX index gained 1.10 percent.