BERNANKE - REUTERS
NEW YORK:
WALL STREET extended its month-long retreat yesterday as inflation fears kept investors on edge following hefty losses last week, the worst so far in 2006. The Dow Jones industrials lost almost 100 points, and the Nasdaq composite index tumbled to a seven-month low.
Investors have been reluctant to buy stocks ever since the Federal Reserve said in early May that record oil prices could require higher interest rates to keep prices from climbing elsewhere. Downbeat inflation comments from Federal Reserve Bank of Cleveland President Sandra Pianalto on Monday was another reminder for an already uneasy market.
TRADING EXPECTED TO BE SKITTISH
But recent signs of slowing economic growth now has Wall Street worried that too many rate hikes could send the economy sliding. Trading was expected to be skittish this week ahead of wholesale and consumer price data, which might bring clues about whether the Fed will boost rates again at its June 28-29 meeting.
"There are certainly some positives in the economy to point to, but until we get some more clarity on the battle between inflation and economic growth, the markets are likely to remain volatile," said Michael Sheldon, chief market strategist at Spencer Clarke LLC.
In last hour of trading, the Dow sank 92.96, or 0.85 per cent, to 10,799.23. The blue-chip index shed 355 points last week and is 7.3 per cent below its six-year high of 11,642.98, reached May 10.
Broader stock indicators retreated. The Standard & Poor's 500 index was down 14.98, or 1.2 per cent, at 1,237.32, and the Nasdaq lost 40.69, or 1.91 per cent, to 2,094.37.
NASDAQ DECLINED
The Nasdaq has declined just over 10 per cent from its recent high on May 8, reflecting concerns that the tech industry will suffer in the wake of an economic downturn. A drop of 10 per cent or more is considered a full-fledged correction, which is an interruption of the general bull market trend.
However, while the market could rebound from a correction, it also means that a bear market, in which stocks decline 20 per cent or more, also is a possibility. Neither the Dow nor the S&P 500 are near the 10 per cent losses needed for a correction.
And whether stocks will continue their slide depends largely on the Fed's opinion of upcoming inflation data, said Joseph Battipaglia, chief investment officer at Ryan, Beck & Co. The Fed has indicated its determination to fight inflation by extending its rate tightening, even at the sake of economic growth.
