NEW YORK (MarketWatch) -- Stocks fell sharply on Tuesday, as oil near $130 a barrel fueled concerns that surging commodities prices will further crimp U.S. consumption, while an official signaled the central bank may be done with cutting interest rates to boost the economy.
"The number one concern on everyone's mind is higher oil prices," said Robert Pavlik, chief investment officer at Oaktree Asset Management. "Investors are questioning whether the rally we've had [over the past two months] is sustainable, with concerns about energy and remaining problems in the financial industry."
Oil surged to a new record of $129.60 a barrel, with bullish calls by investments banks, weakness in the dollar and supply concerns fueling the gains. Consumer-related stocks were among the worst decliners early on Tuesday.
The Dow Jones Industrial Average was off 209 points, or 1.6 percent, to 12,819 with 29 of its 30 components in the red. The S&P 500 fell 15 points, or 1 percent, to 1,411. The Nasdaq Composite dropped 29 points, or 1 percent, to 2486. What happened here is that investors got hit with some serious whammies. The first whammy was oil prices spiking to almost $130 a barrel. The second whammy was that the core Producer Price Index--which excluded food and energy prices--rose 0.4 percent in April, twice what analysts were expecting with the core PPI rate. Investors are, again, starting to worry about rising inflation. I would also include a third whammy of the first-quarter profit losses at Home Depot, Lowes, and Target. All three of these whammies point to serious problems within the U.S. economy--specifically the continued increase in energy prices, the rising fears of inflation, and a cutback in American consumer spending.
Can you say stagflation?
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