Stocks tumble on core CPI data

The Dow sank 214 points, its biggest single-session slide in three years.
NEW YORK (AP) -- Just a week after the Dow Jones industrial average climbed toward its all-time high on a wall of optimism, a troubling consumer price report gave Wall Street's best-known indicator its worst day in more than three years.
The average of 30 blue chip stocks sank 214 points after the Labor Department's consumer price index delivered evidence that soaring energy costs were driving up consumer prices in other parts of the economy. The report confirmed the fears of a market already on edge from recent signals that the Federal Reserve might have to keep lifting interest rates while inflation pressures persist.
Wednesday's drop was a stunning turn for a Dow average that last week came within 13 points of its best-ever close of 11,722.98, reached Jan. 14, 2000. The market's advance was fueled by growing expectations that the Fed had accomplished its goal of nudging short-term lending rates until prices showed signs of stabilizing.
But with crude oil pressing record levels and the dollar steadily weakening against the Japanese yen, analysts say it may be time for investors to face the facts: Higher interest rates are inevitable as the global economy continues to expand. Wall Street appears to be coming to terms with the situation, with the Dow shedding 437 points in the last five trading days.
One-month low
The Dow sank 214.28, or 1.88 percent, Wednesday to 11,205.61, a one-month low. The Dow slid as much as 245.51 points earlier and logged its biggest single-session slide since falling 307 points on March 24, 2003.
Broader stock indicators also declined. The Standard & amp; Poor's 500 index lost 21.76, or 1.68 percent, to 1,270.32, its lowest close since finishing at 1,262.86 on Feb. 13; the Nasdaq fell 33.33, or 1.5 percent, to 2,195.80, showing a loss for the first time in 2006.
Declining issues led advancers by nearly 5 to 1 on the New York Stock Exchange, where volume of 2.1 billion shares topped the 1.7 billion shares that changed hands Tuesday.
Investors were spooked by the Labor Department report that CPI swelled 0.6 percent in April, topping forecasts of 0.5 percent. But the core rate also gained 0.3 percent, ahead of estimates and building on worries that soaring oil prices have begun to lift prices elsewhere.
The inflation data dragged bonds lower and overshadowed solid earnings from Hewlett-Packard Co. and cooling oil prices. Wall Street has been extremely anxious about economic news after the Fed last week said more rate hikes could be needed to battle inflationary pressures from record commodities prices.
"The CPI data really kicked the market in the teeth today," said Ken Tower, chief market strategist for Schwab's CyberTrader. However, he said stocks are now oversold after several days of steep losses, suggesting that investors may start looking for positive signs to spur buying.
Interest rates
The prospect of higher interest rates also hurt bonds, with the yield on the 10-year Treasury note surging to 5.16 percent from 5.1 percent late Tuesday. Last Friday, bond yields reached a four-year high of 5.19 percent.
While Wednesday's retreat reflected Wall Street's ongoing nervousness about interest rates, investors may have gotten ahead of themselves before last week's Fed meeting. Many traders were betting that the central bank would pause its two-year streak of rate hikes, and catapulted the major indexes to fresh multiyear highs.
The Fed boosted rates to 5 percent and left flexibility to pause its rate tightening. However, the Fed cautioned that soaring oil and gold prices pose a threat to inflation and could warrant higher interest rates to stifle demand and keep prices from escalating. The CPI report and Tuesday's producer price index reading reinforced that warning.
Gregory Miller, SunTrust Banks' chief economist, said the market was still largely split on whether the Fed will increase the key short-term lending rate by another quarter percentage point when policymakers meet June 29.
"It won't surprise me if this is when they decide to start the pause and allow data to accumulate," Miller said. "I suspect what they'll find is energy prices will stop trending higher, and the slower growth numbers will accumulate."
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