NEW YORK – U.S. stocks dropped Tuesday as Wal-Mart Stores Inc. (WMT) warned that high oil prices are taking a toll on consumer spending, and the government said surging energy costs drove the consumer price index up in July.
The Dow Jones industrial average was down 72 points at 10,562. The Standard & Poor's 500 Index was down 9 points at 1,225. The technology-laced Nasdaq Composite Index was down 21 points at 2,145.80.
The Russell 2000 index of smaller companies fell 7.39, or 1.11 percent, to 658.25.
Shares of Wal-Mart, the world's largest retailer and a Dow component, Wal-Mart fell $1.77 to $47.33 after it warned of weaker third-quarter results as high gasoline prices curbed sales and drove up costs.
John Caldwell, chief investment strategist at McDonald Financial Group of Cleveland, said investors were chilled by Wal-Mart's outlook and "specifically the fact that they cited higher gas prices having an impact on their consumers."
Investors focused on Wal-Mart's buzz-of-the-day warnings of future troubles. While the Dow component's earnings beat Wall Street's profit forecasts by 2 cents per share, its revenues missed estimates.
Fellow Dow Industrial component Home Depot (HD), the world's largest home improvement retailer, reported higher quarterly profit, topping estimates, but its shares fell 2.2 percent to $40.78. Department store retailer J.C. Penney (JCP) also posted higher earnings, but its stock also dropped, losing 4.6 percent to $49.52.
The company, apparently avoiding the energy pinch felt by Wal-Mart and other retailers, also increased its profit forecasts for the rest of the year.
Deere & Co. (DE), the world's largest maker of farm equipment, reported a 3.5 percent decline in quarterly profits, citing drought conditions in key markets. Deere's stock fell 11.2 percent to $64.65.
Computer maker Gateway Inc. (GTW), which reported after the close of regular trading Monday, posted a quarterly profit for the first time in three years, but cut its profit and sales forecasts for the rest of the year. That led analysts at Bear Stearns to cut their rating on the company to "underperform" from "peer perform." Gateway tumbled 83 cents, or 21 percent, to $3.06.
Apple Computer Inc. (AAPL) was one of the Nasdaq's biggest decliners, falling 2.5 percent to $46.49. Chipmaker Intel Corp. (INTC) was also off, down 1.7 percent at $26.08, weighing on the Nasdaq and the Dow average.
Soaring energy costs pushed the U.S. consumer price index, a gauge of inflation at the retail level, up 0.5 percent in July, exceeding expectations, the Commerce Department said.
Investors fretted over the latest reading of the CPI, which showed the biggest increase in three months and larger than the 0.4 percent hike economists had expected. With food and energy prices removed, "core" CPI rose 0.1 percent.
Crude oil futures traded in a narrow range but remained in the mid-$60 range — high enough to keep gasoline and heating oil prices near record levels. A barrel of light crude for September delivery was quoted at $66.10, down 17 cents, on the New York Mercantile Exchange.
"We are starting to see the bite from some of the risks that have been lurking in the background, like oil," said Hans Olsen, managing director and chief investment officer at Bingham Legg Advisers. "I think it's going to continue to be tougher for this market to do anything positive."
Bonds rose sharply as stocks moved lower, with the yield on the 10-year Treasury note falling to 4.22 percent from 4.28 percent late Monday. The dollar was up against the euro and gold prices rose.
Wal-Mart's outlook weighed on the retail sector as a whole as well, with the Standard & Poor's retail index off 2.1 percent. Even shares of Home Depot Inc. and J.C. Penney Co. Inc. were lower, though those companies had posted quarterly results that topped Wall Street expectations.
An economic report from the Federal Reserve (search) showed U.S. industrial production rose less than expected last month, up 0.1 percent, compared with economists' forecast for a 0.5 percent increase.
In one of the few bright spots of the session, investors welcomed the Commerce Department's (search) report on home construction. For July, the number of housing projects started fell slightly to an annualized 2.042 million units, but housing permits issued reached a 21-year high.
Delta Air Lines Inc. (DAL) rose 6 cents to $1.45 after it sold its Atlantic Southeast Airlines unit to SkyWest Inc. for $425 million in an effort to stave off bankruptcy. SkyWest (SKYW) climbed $2.27, or 10 percent, to $24.31.
Declining issues outnumbered advancers by more than 2 to 1 on the New York Stock Exchange, where volume came to 827.96 million shares, up from 745.91 million traded at the same point on Monday.
Overseas, Japan's Nikkei stock average rose 0.48 percent. Britain's FTSE 100 slipped 0.41 percent, Germany's DAX index lost 0.78 percent, and France's CAC-40 fell 0.49 percent.
Reuters and The Associated Press contributed to this report.