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Inflation Fears Drag Stocks Lower - U.S. Commentary



(RTTNews) - Following the release of troubling inflation data, stocks are trading in negative territory in morning trading on Tuesday. With reports showing signs of higher inflation and a weakening economy, investors are worried about stagflation.

Before the opening bell, a report released by the Department of Labor showed that wholesale price inflation rebounded by much more than expected in the month of January, with higher food and energy costs contributing to the price growth.

The Labor Department said its producer price index rose 1.0 percent in January following a 0.3 percent decrease in December. Economists had been expecting a more modest increase of about 0.3 percent compared to the 0.1 percent decrease originally reported for the previous month.

The bigger than expected increase in prices was partly due to a jump in food prices, which rose 1.7 percent in January after a 1.4 percent increase in the previous month. The increase in food prices marked the fastest pace of growth since October of 2004.

Additionally, consumer confidence deteriorated much more than expected in the month of February, according to a report released by the Conference Board on Tuesday, with the decrease reflecting a weakening in consumers' assessment of current conditions as well as their expectations.

The Conference Board said its consumer confidence index fell to a reading of 75.0 in February from a revised 87.3 in January. Economists had been expecting the index to slip to a reading of 82.0 compared to the 87.9 originally reported for the previous month.

In recent trading, the major averages remain in negative territory with the Nasdaq briefly moving to its lowest level of the day. The Nasdaq is currently down 8.46 at 2,319.16, the Dow is down 28.66 at 12,541.56 and the S&P 500 is down 5.22 at 1,366.58.

Sector News

Chemical stocks are turning in some of the worst performances, with the S&P Chemical Index falling 1.1 percent. The index had seen some strength in the past two weeks, setting a monthly closing high on Monday.

Natural gas stocks are also seeing selling pressure despite a slight gain in the price of natural gas. The Amex Natural Gas Index is down 0.5 percent after ending the previous session at a record closing high.

Real estate stocks are substantially lower as well, with the Morgan Stanley REIT Index dropping 1.2 percent. Among real estate stocks, Nationwide health Properties (NHP) is one of the biggest losers, trading 3.2 percent lower.

Telecommunications stocks are also notable losses, contributing to a 1.1 percent decline by the Amex North American Telecommunications Index. Within the telecommunications sector, Quest Communications (Q) is seeing one of the biggest declines, falling 3 percent.

Bank, internet, wireless and brokerage stocks are also notably lower. The S&P Bank Index is currently down 1.4 percent.

On the other hand, housing stocks are seeing significant buying interest, with the Philadelphia Housing Index gaining 1.7 percent. The index received a boost on Monday after the release of better than expected housing data.

Other stocks that are higher include retail and biotechnology stocks.

Stocks Driven By Analysts Comments

Among individual stocks, Teradyne (TER) is seeing significant buying interest after being upgraded to an Outperform rating by an analyst at Oppenheimer. The analyst stated that several positive catalysts should benefit the company in the second quarter.

Shares of Teradyne are trading 8.5 percent higher, adding to gains posted in the previous two sessions. Earlier, the stock set a three-month intraday high.

Kendle (KNDL) is also posting a strong gain after being upgraded by a pair of analysts that said the clinical research company's price is attractive. Analysts from Jefferies & Co. and First Analysis Securities both raised Kendle's rating to the equivalent of a Buy rating. Shares are up 8 percent after setting a five-month closing low on Monday.

On the other hand, Paychex (PAYX) is seeing considerable selling pressure following a downgrade by an analyst at Banc of America. The analyst downgraded the stock to a Neutral rating from a Buy rating and pared his price targets. The stock is currently down 3 percent.

Other Markets

In overseas trading, most Asian markets traded higher on Tuesday, except for the Japanese and Indonesian markets. Japan's Nikkei 225 average hovered in positive territory until the afternoon, but it receded in late trading on profit taking before ending down 0.7 percent.

The major European markets are seeing buying interest as well. France's CAC 40 average is gaining 0.3 percent and Germany's DAX average is up 0.9 percent. The U.K.'s FTSE 100 is climbing 0.8 percent.

Meanwhile the benchmark ten-year note is trading in a range just above the unchanged line. Subsequently, the yield on the ten-year note is down less than 1 basis point at 3.893 percent