New York – Wall Street waffled but showed some signs of stability Monday, posting a moderate decline after falling sharply early in the session in response to sinking commodities prices.
The Dow fell 18.73, or 0.17 percent, to 11,125.33, after tumbling as much as 103 points earlier. Fears that inflation will bring higher interest rates have sent the Dow down more than 4 percent since May 10.
The Bloomberg Colorado Index, a weighted average of 111 public companies based in the state, fell by 1.4 percent Monday. The Nasdaq composite index was hit hard Monday as technology stocks fell out of favor with risk-averse investors, but it finished above its lows for the day.
A drop in commodities prices and fear of rising interest rates left stocks in emerging markets down for the 10th straight session, led by a steep pullback on India’s exchanges. The retreat in commodities overshadowed a rebound in bonds and a recovering U.S. dollar.
With the outlook for inflation and interest rates still unclear, traders were nervous about buying stocks affected by the sliding price of gold and other metals, as well as riskier investments such as tech issues.
“This is essentially a classic tug of war between real assets and financial assets,” said Jack Ablin, chief investment officer of Harris Private Bank.
Federal Reserve Chairman Ben Bernanke may be facing a central banker’s nightmare this year: It’s what Allen Sinai, president of Decision Economics Inc. in New York, terms “a mild dose of stagflation,” according to a Bloomberg News report.
Monday’s sell-off reflected Wall Street’s continued anxiety over the prospect of more interest-rate hikes from the Fed.
Investors, hopeful that the Fed was near the end of its rate-tightening, catapulted stocks to multiyear highs this month, but recent indications that inflation remains an issue and that higher rates could be coming have sent the market racing downward.
While the market has been hoping for lower oil and gold prices to help ease inflation, analysts say investors aren’t ready to start buying again.
“Investors need to start discerning what’s risky and what’s not,” Ablin said.
The Dow briefly turned higher late in the day as investors bought up large-cap stocks, which have lagged the broader market so far this year.
Broader stock indicators also recouped some earlier losses. The Standard & Poor’s 500 index lost 4.96, or 0.39 percent, to 1,262.07; the Nasdaq dropped 21.02, or 0.96 percent, to 2,172.86, a sign of Wall Street’s diminishing faith in the volatile tech sector.
Commodities have pulled back drastically over the past week and a half after hitting record highs: Gold prices are now at $657.70 an ounce after reaching a 26-year high of $732; silver is at $12.43 an ounce after reaching a 23-year high of $15.20; copper is at $3.46 an ounce, down from more than $4; platinum is at $1,284.60, down from a record $1,340. Meanwhile, crude oil is at $69.23 a barrel, down from a record $75.35 in April.
