Inflation in producer prices took the air out of the stock market today.
After advancing for two days in a row and building up hopes for a turnaround, stocks slumped in response to the biggest jump in 15 years in wholesale prices.
The Dow Jones industrial average fell 63 points to 10,285.26. The Standard & Poor's 500 stock index lost 12 points, closing at 1,178.14. The Nasdaq Stock Market composite index dropped 14 points to 2,056.00.
The producer price index increased by 1.9 percent in September -- mostly because of soaring energy prices, the government reported. And even after factoring out energy and food -- which like energy gyrates from month to month -- "core" inflation was up 0.3 percent, which is worse than economists were expecting.
Today's report showed prices paid to producers are increasing faster than prices paid by consumers. That means middlemen -- such as retailers -- are not passing on all their higher costs to their customers. Economists say demand is so soft that consumers won't pay higher prices, which is forcing merchants to eat some of their higher costs.
The bottom line for Wall Street is that if producer prices are going up faster than consumer prices, then the businesses in the middle must be getting pinched. Smaller corporate profits are not what stock buyers want to see.
Today, actually they saw very good earnings report, but the strong numbers were overwhelmed by worries about inflation.
Merrill Lynch reported today that its profits jumped 49 percent, IMB came in with a slightly better quarter than expected and Johnson & Johnson posted a 12 percent earnings gain. Wells Fargo and SunTrust banks both turned in record quarterly earnings.
But that was last quarter. The inflation numbers suggest that this quarter, profit growth may be choked off by rising energy costs. That is not a forecast that encourages stock buyers.
Investors were also discouraged by news that a big Wall Street firm brokered the sale of a 24-million-share block of Exxon Mobil stock. Exxon Mobil dropped after the report of the sale, which suggested some big investor has decided energy stocks have peaked.