Stocks Tumble, Erasing Big Gain

The stock market reversed course Thursday as signs of rising inflation, a sluggish economy and uneven corporate profits sent the Dow Jones industrials down 133 points, or 1.3%, wiping out Wednesday’s big gain.

Wall Street took no solace from another drop in oil and gasoline futures prices.

The Dow had climbed nearly 129 points Wednesday, but that rally proved short-lived as bellwether drug maker Pfizer lowered its profit forecast for this year and yanked its forecasts for 2006 and 2007, deepening investor worries about the longer-term trend in corporate earnings.

Also Thursday, the Federal Reserve Bank of Philadelphia issued an economic report that focused attention squarely on the threat of higher inflation.

Manufacturing activity in the mid-Atlantic region perked up more sharply than expected this month after slowing in September, the report showed.

But the Fed bank also said that an index measuring how many manufacturers in the region raised prices for their own products jumped by the most since 1981 -- suggesting that companies were passing along higher costs, such as for raw materials, to customers.

For the last month Fed officials have made it clear in their comments that inflation, rather than economic growth, is their chief concern, said Shelly Meyers, manager of the Pacific Advisors Multi-Cap Value stock fund in Glendale.

That means there is no end in sight to the Fed’s campaign of raising interest rates, even if the economy slows, Meyers said.

And if price pressures are spreading beyond energy, “Now you have the specter of accelerated inflation together with the specter of slower growth,” Meyers said. “That’s never good for the stock market. It’s the worst of both worlds.”

Another report Thursday pointed to economic weakness in the months ahead.

The index of leading economic indicators fell by a larger-than-expected 0.7% in September, its third straight decline, the Conference Board said. The index is designed to signal how the overall economy will fare over the next three to six months.

On Wall Street, stocks declined slowly early in the day, then fell sharply toward the end of trading.

The Dow ended with a loss of 133.03 points, or 1.3%, to 10,281.10.

The broader Standard & Poor’s 500 index fell 17.96 points, or 1.5%, to 1,177.80, and the technology-heavy Nasdaq composite slid 23.13, or 1.1%, to 2,068.11.

Losers outnumbered winners by 3 to 1 on the New York Stock Exchange and by more than 2 to 1 on Nasdaq, in heavy trading.

Still, the S&P; 500 and other major indexes closed above the lows they reached last week, which could be a sign that the market is in the process of bottoming out after mostly declining since mid-September, some analysts said.

Market bulls had been hoping that third-quarter earnings reports would bolster optimism. But results have been mixed, and investors have been quick to dump shares of companies that have disappointed.

Pfizer, the world’s biggest drug firm, was a drag on the Dow on Thursday, sliding $2.07 to an eight-year low of $21.90 after its dismal earnings report.

Amgen, the biggest biotech company, slid $3.99 to $74.10 after reporting third-quarter sales below Wall Street estimates.

Internet auction giant EBay fell $2.86 to $39.15 after giving a 2006 outlook that was weaker than some investors had hoped.

In commodities trading, near-term crude oil futures slid $1.38 to $61.03 a barrel in New York trading, and gasoline futures dropped to near four-month lows, as worries about potential damage to oil facilities from Hurricane Wilma lessened.

Instead of helping the stock market, lower energy prices may have hurt it Thursday by spurring fresh selling in oil stocks. ConocoPhillips lost $3.80 to $57.75, Chevron fell $2.59 to $55.75 and Valero Energy sagged $6.03 to $92.95.

As stocks fell, some investors bought bonds. The 10-year Treasury note yield slipped to 4.43% from 4.46% on Wednesday.

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Investors dump the winners

The stocks that led the global bull market in the first nine months -- including energy issues, smaller-company shares and many foreign issues -- have led the sell-off since the fourth quarter began.

*--* Thurs. Pctg. Gain in first Drop since Index close chng. nine months Sept. 30 NYSE energy 9,393.69 -3.9% +36.8% -13.4% Dow utilities 380.98 -3.1 +29.1 -11.9 Bovespa/Brazil 28,344.08 -3.3 +20.6 -10.3 IPC/Mexico 14,821.10 -1.9 +24.8 -8.1 S&P-TSX;/Canada 10,190.73 -2.3 +19.1 -7.5 Bloomberg REIT 191.04 -1.5 +6.2 -6.4 S&P; small-cap 329.05 -1.9 +6.5 -6.0 S&P; mid-cap 676.05 -1.3 +8.0 -5.6 S&P; 500 1,177.80 -1.5 +1.4 -4.2

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Sources: Bloomberg News, Times research