Strong Retail Sales Send Stocks Lower
November’s Consumer Price Index came in with an increase of 0.1%, which was better than the 0.2% increase analysts had expected. The core rate remained steady at 0.2%, which was in line with expectations. Retail sales however, posted a 0.9% gain, which was significantly higher than the 0.5% Wall Street expected, and that helped drive stocks lower.
The retail sales data reminded the market that even though the CPI figures may show little inflation now, a booming consumer economy could possibly prompt the Fed to raise rates again. Though few market analysts see a hike in rates at next week’s Fed meeting, the specter of February rate hikes remains a possibility.
March T-bonds traded lower after the release of the retail sales number, and they finished the day down 1 9/32 at 93 1/32. Stocks took their cue from bonds and traded choppy for most of Tuesday, before selling-off sharply into the close. Recent technology and Internet winners sold off along with financials in a day of heavy volume trading.
According to preliminary numbers, the Dow fell 30.58 to 11162.01, the Nasdaq dropped 85.97 to 3572.20 and the S&P 500 declined 11.90 to 1403.32.
Groups that faced the most downward pressure Tuesday included semiconductors [$SOX.X>$SOX.X], down 6.7%, Internets [$GIN.X>$GIN.X], down 5.9%, gold and silver [$XAU.X>$XAU.X], down 3.1%, and broker/dealers [$XBD.X>$XBD.X], down 3.1%.
Top-performing groups Tuesday were forest and paper products [$FPP.X>$FPP.X], up 4.8%, chemicals [$CEX.X>$CEX.X], up 2.8%,and oil services [$OSX.X>$XAL.X], up 2.3%.
Rumors of a possible settlement with the government sent Microsoft shares higher. The stock had hit a new 2-month high Tuesday morning and then surged to an all-time high in the early afternoon. While no official word confirmed or denied the rumor, the stock held on to solid gains for the day, finishing up 2 1/16 at 98 11/16.
The Microsoft rumor may also have contributed to the declines in some of Microsoft’s biggest competitors. For instance, Sun Microsystems [SUNW>SUNW], dropped 4 7/8 to 75 9/16, Apple [AAPL>AAPL], fell 4 1/8 to 94 7/8, and Oracle [ORCL>ORCL], slid 2 7/8 to 76 15/16.
The Microsoft rumor-mill also could have contributed to the weakness in the Linux stocks. Linux-related companies continued their recent sell-off, with Red Hat [RHAT>RHAT], VA Linux [LNUX>LNUX], Corel Corp. [CORL>CORL], Andover Net [ANDN>ANDN], Perle Systems [PERL>PERL] all dropping by more than 10% for the day.
Weighing most heavily on the Dow Tuesday were declines by Hewlett Packard [HWP>HWP], down 4 11/16 to 103, American Express [AXP>AXP], down 5 13/16 to 160 1/2, and Citigroup [C>C], down 1 13/16 to 53 1/2. The top gainer on the Dow was Du Pont [DD>DD], up 3 1/4 to 64 7/8.
CMGI [CMGI>CMGI] was a bright spot for most of Tuesday, trading intraday at an all-time of 226 1/8. CMGI ended the day down 6 1/8, but had been one of the top performing stocks of the day. The Internet incubator has announced the creation of CMGI Solutions, a majority owned operating company that will focus on e-business services.
Traders now look to Wednesday morning’s release of industrial production numbers, as well as a report on business inventories.