- The Washington Times - Tuesday, October 4, 2005

NEW YORK (AP) — Stocks fell sharply yesterday as a number of companies warned of profit shortfalls and higher costs, some of which could be passed along to consumers. Concerns over interest rates also pressured stocks after a Federal Reserve official hinted at more increases.

The markets were higher in the early part of the session as investors welcomed a decline in crude oil futures, prompted by news that the government could release heating oil reserves to help counter higher heating costs as winter approaches. A barrel of light crude settled at $63.90, down $1.57, on the New York Mercantile Exchange.

Yet the specter of inflation quickly overcame any advances. Procter & Gamble Co.’s stock was downgraded because of higher raw material prices, and Clorox Co. blamed high energy costs for an expected earnings shortfall and increases in the retail prices of its products, which could exacerbate Wall Street’s inflation fears.

Inflation concerns were heightened as Dallas Federal Reserve Bank President Richard Fisher said inflation was nearing the high end of the Fed’s comfort zone — a clear signal that the Fed will continue raising interest rates.

The Dow Jones Industrial Average fell 94.37, or 0.9 percent, to 10,441.11.

Broader stock indicators also moved substantially lower. The Standard & Poor’s 500 index lost 12.23, or 1 percent, to 1,214.47, and the Nasdaq Composite Index dropped 16.07, or 0.75 percent, to 2,139.36.

Bonds edged higher after the previous session’s sell-off, with the yield on the 10-year Treasury note falling to 4.38 percent from 4.39 percent late Monday. The dollar was mostly lower against other major currencies, while gold prices were flat.

Energy stocks, which have been a market leader for much of the year, led decliners as investors, particularly hedge funds, moved out of oil stocks and into the health care and technology sectors.

“You’re seeing the fast money shift around a bit, and short term, that’s good for stocks,” said Ken Tower, chief market strategist for Schwab’s CyberTrader. “Longer term, you have to consider that, at some point, energy prices are going to catch up to the economy and the market.”

The latest Commerce Department report on factory orders failed to prop up stocks, even though factory orders surged 2.5 percent in August, compared with a 2.5 percent drop in July. Those figures did not include the effect of hurricanes Katrina and Rita and the subsequent jumps in energy and raw material costs.

Higher energy prices prompted Clorox to slash its profit outlook for the second quarter as well as the fiscal year. The household product maker also announced a 40 percent increase in prices to offset those higher costs. Clorox dropped 77 cents to $53.81.

Procter & Gamble was downgraded to “hold” from “buy” at JP Morgan Worldwide Securities because of concerns over higher raw material prices, which were blamed in part on energy costs. P&G; shares lost $1.23 to $58.08.

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