Stocks finished lower Tuesday, though above their weakest levels of the session, as a set of strong economic data stoked concerns that the Federal Reserve may have to continue raising interest rates. Friday's nonfarm payrolls report could prove to be crucial, says Standard & Poor's Equity Research.
The Dow Jones industrial average fell 59.95 points, or 0.54%, to 11,125.73, led downward by General Motors (GM). The broader Standard & Poor's 500 shed 5.74 points, or 0.45%, to 1,270.92. The tech-heavy Nasdaq composite tumbled 29.48 points, or 1.41%, to 2,061.99.
Market players were sifting through solid economic reports Tuesday, ahead of the Fed's Aug. 8 interest-rate meeting. The core PCE deflator, a closely watched inflation gauge, rose 0.2% in June, putting the year-over-year rate at 2.3%, up from the Fed's 2% comfort zone. Personal income rose 0.6% after a 0.4% rise in May. "While the rise in the core price index is no surprise, it's still not comforting as the trend has been toward higher prices," says Action Economics.
Among other data releases, the Institute for Supply Management's manufacturing index rose to 54.7 in July, from 53.8 in June. Construction spending gained 0.3% in June after a flat May reading. Pending home sales nudged higher 0.4% to 113.9 in June from 113.4 in May, snapping a three-month streak of declines.
The numbers raise doubts about whether the Fed will pause from its tightening cycle at the Aug. 8 meeting, says Action Economics. "The latest data on income and spending support our call that the economy has more upside momentum than the markets anticipate," adds Steven Ricchiuto, chief U.S. economist at ABN Amro. Wednesday's economic calendar is quiet, while Friday's employment report will be the week's big event.
Others say a cooling economy should give the Fed enough cover to avoid another rate hike. "The Fed is expecting this moderation in growth to help limit inflation pressures over time," says John Ryding, chief U.S. economist at Bear Stearns. "Given this, combined with some Fed officials' opinion that policymakers should be mindful of the possible future effects of previous rate actions, we still see the FOMC keeping rates on hold for the first time in over two years at next week's Fed meeting."
On the company side, Advanced Micro Devices (AMD) was lower following news that Dell (DELL) will begin selling notebook computers that use the chipmaker's processors. Dell shares declined.
Monthly vehicle sales reports began to trickle in. DaimlerChrysler (DCX) posted sales of 16.2 million units in July, down 34% from a year earlier and weaker than expected. Ford (F) also recorded a 34% drop in July sales, while General Motors said its sales decreased 22.5%.
In earnings news, Whole Foods (WFMI) was sharply lower after the natural-foods retailer reported quarterly sales of $1.34 billion, below analyst expectations.
Telecom company Verizon (VZ) was lower after it posted a 24% decline in second-quarter profit, citing labor and merger costs.
Meanwhile, Archer Daniels Midland (ADM) was slightly lower after the oilseed, corn and wheat processor said its quarterly earnings doubled, helped by strong ethanol sales.
Photography company Eastman Kodak (EK) was down sharply after posting a wider second-quarter loss of $282 million on a 9% revenue decline.
Satellite radio operator Sirius Satellite Radio (SIRI) was flat as it reported a wider second-quarter loss but boosted its projections for full-year subscribers and revenues.
Companies due to announce quarterly results Wednesday include Procter & Gamble (PG), Starbucks (SBUX), and Time Warner (TWX).
In the energy markets Tuesday, September West Texas Intermediate crude oil futures rose 51 cents to $74.91 a barrel amid storm warnings ahead of a weekly inventory report due Wednesday.
European markets finished lower. In London, the Financial Times-Stock Exchange 100 index lost 47.5 points, or 0.8%, to 5,880.8. Germany's DAX index skidded 85.23 points, or 1.5%, to 5,596.74. In Paris, the CAC 40 index was down 61.19 points, or 1.22%, to 4,948.23.
Asian markets finished lower. Japan's Nikkei 225 index slipped 15.9 points, or 0.1%, to 15,440.91. In Hong Kong, the Hang Seng index declined 59.97 points, or 0.35%, to 16,911.37. Korea's Kospi index retreated 10.46 points, or 0.81%, to 1,287.36.
Treasuries drifted in the wake of the firm economic data. The 10-year note was little changed at 101-04/32 for a yield of 4.98%, while the 30-year bond was also flat at 91-12/32 for a yield of 5.07%.