- The Washington Times - Tuesday, October 18, 2005

NEW YORK (AP) — Wall Street’s chronic inflation fears sent stocks skidding yesterday as a sharp jump in wholesale prices overshadowed strong profit reports from several Dow Jones industrials.

Heavy selling in the energy sector also pressured the major indexes.

Better-than-expected earnings from Johnson & Johnson, IBM Corp. and United Technologies Corp. were overlooked by investors preoccupied by the biggest increase in the Labor Department’s Producer Price Index in 15 years. The PPI, which measures prices at the wholesale level, rose 1.9 percent in September on high energy and food costs. With those costs removed, “core” PPI rose 0.3 percent, still higher than the 0.2 percent expected on Wall Street.

While a drop in crude-oil futures may have mitigated those inflation concerns, they may have also contributed to a sharp sell-off in oil stocks, most notably Dow component Exxon Mobil Corp. A barrel of light crude settled at $63.20, down $1.66, on the New York Mercantile Exchange.

Aside from the energy sector, analysts said, the selling was relatively moderate, and that many investors seemed to be standing pat, rather than selling off completely.

The Dow fell 62.84, or 0.61 percent, to 10,285.26.

Broader stock indicators also lost ground. The Standard & Poor’s 500 index dropped 11.96, or 1.01 percent, to 1,178.14, and the Nasdaq Composite Index dropped 14.30, or 0.69 percent, to 2,056.00.

Bonds edged higher as stocks fell, with the yield on the 10-year Treasury note falling to 4.48 percent from 4.50 percent late Monday. The dollar rose against most major currencies, while gold prices fell.

In recent weeks, Fed officials have expressed concern over rising oil prices, both in terms of fueling inflation and hampering economic growth. Fed Chairman Alan Greenspan, in Tokyo for a speech yesterday, said the jump in energy prices “will undoubtedly be a drag [on the economy] from now on.”

With wholesale prices rising, the Fed is likely to continue to raise rates through the end of the year, according to Hugh Johnson, chairman and chief investment officer at Johnson Illington Advisors.

“The fear in the marketplace is that the Fed is going to be seduced by this inflation data into raising rates too high,” Mr. Johnson said. “And while earnings are good right now, earnings won’t be good in 2006 if rates go too high.”

Strong profits at Dow component Johnson & Johnson led a steady stream of positive earnings reports, though the market appeared somewhat unreceptive.

The health care conglomerate saw a 12 percent jump in profits, led by higher medical device sales. Johnson & Johnson, which beat Wall Street profit forecasts by a penny, slipped 3 cents to $62.97.

IBM gained 89 cents to $83.48 after posting a slight decline in profits that nonetheless beat analysts’ expectations by 13 cents per share. The key earnings report, which excluded its recently sold personal computer business, has seen evidence of the success of the company’s restructuring efforts.

Manufacturer United Technologies saw positive growth across its diversified businesses, particularly in its Carrier heating and air-conditioning division, which boosted profits by 19 percent from a year ago. United Technologies nonetheless lost $1.16 to $49.95 as some analysts expressed concern about a drop-off in demand for the company’s aircraft parts.

Fellow manufacturer 3M Corp. jumped $2.24 to $74.71 as the company not only beat Wall Street forecasts by 4 cents per share, but raised its outlook for the fourth quarter — a strong statement considering the increasingly dire forecasts for the economy.

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