Stocks fall amid Wall Street inflation worries

NEW YORK – Wall Street slumped Friday after another reading on inflation deflated hopes the Federal Reserve will start moving toward an interest rate cut when it meets next week. The major indices suffered moderate losses for the week.

The inflation reading was the second in as many days that upended expectations that the Fed might consider lowering rates as the economy gives off signs of slowing. The sentiment overshadowed a stronger-than-expected increase in industrial production.

“The market is dealing with the softer economic data that we’re seeing and trying to reconcile that with the somewhat stiff inflation data,” said Marie Schofield, fixed income strategist and portfolio manager at Columbia Management Group.

The Dow Jones industrial average fell 49.27, or 0.41 percent, to 12,110.41.

Broader stock indicators also slipped. The Standard & Poor’s 500 index fell 5.33, or 0.38 percent, to 1,386.95, and the Nasdaq composite index fell 6.04, or 0.25 percent, to 2,372.66.

Advancing issues outpaced decliners by about 3 to 2 on the New York Stock Exchange, where volume came to a heavy 2.07 billion shares as options contracts expired.

For the week, the Dow fell 1.35 percent, the S&P 500 index tumbled 1.13 percent and the Nasdaq fell 0.62 percent.

Bonds showed less movement than might be expected given inflation concerns and instead focused on a slide in stocks. The yield on the benchmark 10-year Treasury note rose to 4.55 percent from 4.54 percent late Thursday. The dollar was mixed against other major currencies, while gold prices rose.

Light, sweet crude oil settled down 44 cents at $57.11 per barrel on the New York Mercantile Exchange.

Inflation concerns remained entrenched on Wall Street Friday. The Labor Department’s report that its Consumer Price Index rose by 0.4 percent in February renewed some of the concerns that dogged stocks on Thursday. Wall Street had expected an increase of 0.3 percent. The rise was double that of January and the largest rise since a similar increase in December. Rising costs for gasoline, food and citrus crops helped boost prices.

However, the important core figure, which excludes often volatile food and energy prices, didn’t surprise Wall Street. It rose 0.2 percent, as expected.

The Federal Reserve reported industrial production increased 1 percent in February, well above the 0.3 percent increase analysts expected.

The consumer inflation figures came one day after a key measure of inflation at the wholesale level took Wall Street by surprise with a higher-than-expected reading. Wall Street overcame the unwelcome Producer Price Index reading Thursday to move moderately higher as it focused on further corporate takeover news.

The inflation readings draw Wall Street’s attention because investors are concerned that higher prices will make it harder for the Fed to justify a reduction in short-term interest rates, even if such a move could help stave off a further slowdown in the economy. The latest inflation readings carry particular significance as the Fed begins a two-day meeting on Tuesday. The central bank has left interest rates unchanged at its last five meetings, interrupting a string of 17 straight increases that began in 2004.

Joe Balestrino, a portfolio manager at Federated Investors Inc., contends investors are viewing economic data through the eyes of the Fed and not as much for what it says about the economy.

“The fundamentals don’t matter. What ultimately does matter is what the Fed is likely to do,” he said.

“It’s an emotional, sentiment-driven market. Anxiety is driving the market. It’s hard to come to any conclusion that the fundamental value of the market is changed from three to four weeks ago.”

Sentiment took a jarring nosedive on Feb. 27 when a worldwide sell-off raced through the markets and sent the Dow industrials down 416 points that day. Since then, Wall Street has been trying to regain its footing and ascertain whether stocks had found a new bottom.

The volatility and heavy volume that has returned to Wall Street after months of unusual calm surfaced again Friday with the once-per-quarter expiration of stock index futures, stock index options, stock options and single stock futures – a confluence of expirations known on Wall Street as quadruple witching.