Signs Of Economic Strength Rattle Investors

Surprisingly strong economic readings Tuesday upset Wall Street’s new-found optimism on inflation, sending stocks to steep losses as interest rates jumped in the bond market.

The Dow Jones industrial average fell 57.70 points to 5,647.28, its biggest drop since the market’s sharp pullback in mid-July.

The blue-chip barometer’s fall was exacerbated by Philip Morris’ continuing weakness on tobacco litigation worries, but only four of the Dow’s components managed an advance against the session’s negative tone.

Before stock markets opened, the government reported that consumer prices and retail sales rose more than expected in July, aggravating investors’ recently soothed worries about inflation.

“Last week, all the numbers were indicating a slowdown, and these numbers make people wonder,” said Henry Herrmann, chief investment officer at Waddell & Reed of Overland Park, Kan. “You’ve had a pretty good run, and this jostled things a little bit.”

Declining issues outnumbered advancers by more than a 7-to-4 margin on the New York Stock Exchange, where volume totaled 338.35 million shares as of 4 p.m., up from Monday’s pace.

Some of the stocks that moved substantially or traded heavily Tuesday:

NYSE

Wal-Mart, unchanged at 25-7/8.

Home Depot, down 1/2 at 54-7/8.

J.C. Penney, down 7/8 at 52-1/4.

Dillard Department Stores, down 1/2 at 33-3/4.

Wal-Mart and Home Depot reported stronger earnings in the May-July quarter, lifted by double-digit percentage sales gains. Profits at J.C. Penney dropped nearly 20 percent on a surge in bad customer debt. Dillard Department Stores, meanwhile reported a 2.3 percent profit gain.

Deere & Co., up 2-1/2 at 39.

The farm equipment maker said its third-quarter earnings rose 13 percent as high grain prices boosted demand for agricultural equipment.

NASDAQ

Genzyme, up 3-1/4 to 26-1/2.

Genzyme warrants, up 5-1/2 to 17-1/2.

The FDA approved the biotech company’s Seprafilm, a chemical membrane to be used by surgeons to prevent internal scar tissue from forming after abdominal or pelvic surgery. The approval is broader than expected.

Dynamex, up at 8-1/2 from initial offering at 8.

The stock started trading after the delivery-service company sold 2.6 million shares for $20.8 million, or $8 each, in a smaller-than-expected initial public offering.

Escalade, up 2-1/8 at 8-5/8.

The maker of sporting goods and office products plans to buy back 1 million shares of its stock. In the Dutch auction tender, Escalade stockholders can offer to sell their shares at a specific price between $6 and $10 a share. The offer expires Sept. 13.