Wall Street got a wake-up call today about the impact of record energy prices and the aftermath of Hurricane Katrina.
Best Buy, the nation's biggest retailer of electronics, reported its sales slowed in the second quarter and now is cutting its forecast for the rest of the year--including the crucial Christmas season.
Best Buy's stock promptly plunged 11 percent, taking other retail shares and the whole market down with it.
Suffering its worst loss in three years, Best Buy shares fell $5.57 to $44.79.
The Dow Jones industrial average fell more than 85 points to 10,597.44--the worst daily decline in a month. The Standard & Poor's 500 stock index fell nine points to 1,231.20. The Nasdaq Stock Market resisted the selloff for a time but traders gave up the fight and the Nasdaq composite index closed off 11 points at 2,171.75
Wall Street paid little attention to the producer price index report issued this morning, which was based on data obtained before Katrina hit the Gulf Coast. The index of inflation at the wholesale level was up 0.6 percent over last month. Economists usually factor out food and energy prices because they jump around so much; doing that showed zero inflation.
But factoring out food--and especially energy--may not be the best way to look at the inflation numbers at this time. Energy costs, many economists fear, will play the leading role in the economy in the next few month.
While prices at the pump are pulling back, the heating season will soon be upon us, bringing similar sticker shock on natural gas, heating oil and electricity rates.
That concern multiplied the impact of Best Buy's disappointing sales and even brought predictions of a possible recession.
The threat of an economic slowdown was also evident in today's earnings report by Knight-Ridder, one of the nation's largest newspaper chains. Profits fell 20 percent, the company said, blaming weak advertising sales, which in turn reflect a weakening economy.
Virginia-based Gannett also reported softer ad sales--though not as soft as Knight-Ridder's--which brought down other media stocks.