NEW YORK – Stocks slogged through a disappointing session Thursday, with investors consolidating their holdings and selling off stocks despite solid corporate earnings reports and the biggest drop in consumer prices in 56 years.
In late afternoon trading, the Dow Jones industrial average fell 14.24, or 0.13 percent, to 10,869.27. Broader stock indicators were lower. The Standard & Poor's 500 index dropped 3.93, or 0.31 percent, to 1,268.81, and the Nasdaq composite index lost 8.30, or 0.37 percent, to 2,254.29.
Tumbling gasoline prices pushed November's consumer price index down 0.6 percent, the biggest one-month decline since July 1949, according to the Labor Department. Investors considered the drop a good omen for the holiday shopping season. Core CPI, with food and fuel prices removed, rose a modest 0.2 percent, in line with economists' forecasts.
With the Federal Reserve closely watching inflation, the CPI figures bode well for future interest rates. "This gives the Fed a lot more flexibility, a little more elbow room in figuring out when to stop raising rates," said Jack Ablin, chief investment officer at Harris Private Bank in Chicago. "Continuing stable inflation figures like the ones we saw today helps everybody."
Yet investors remained unconvinced, selling off riskier small-cap stocks, along with technology and energy shares that led the November rally, and moving to larger, more established companies, apparently hedging their bets against Wall Street's now-traditional January letdown.
Bonds moved lower, with the yield on the 10-year Treasury note rising to 4.48 percent from 4.45 percent late Wednesday. The dollar was mixed against other major currencies, while gold prices dropped.
Oil prices lost ground, with a barrel of light crude quoted at $60.10, down 75 cents, on the New York Mercantile Exchange.
High energy prices have not hurt the nation's industrial sector. The Federal Reserve said the nation's industrial output rose 0.7 percent in November following a 1.3 percent rise in October. Industrial production had plunged by 1.6 percent in September due to the economic disruption caused by the Gulf Coast hurricanes.
Yet inflation remained on the minds of many investors. Core CPI continued to rise, and energy prices are still at historically high levels for this time of year.
"We're not out of the woods on some of these inflationary pressures," said Jack Caffrey, equities strategist at J.P. Morgan Private Bank. "And with it being the end of the year, you have some selling going on before liquidity dries up before the holidays."
A slight rise in first-time jobless claims also may have dampened some of the enthusiasm. First-time unemployment filings rose to 329,000 last week, more than the 320,000 new claims economists expected. The rate of unemployment claims is still considered consistent with decent employment growth.
Altria Group Inc. (MO) surged $2.92 to $76.65 after the Illinois Supreme Court threw out a $10 billion judgment against the Dow component over Philip Morris' "light" cigarettes marketing. The stock set an all-time high of $78.68 shortly after the ruling was announced.
In earnings news, Lennar Corp. (LEN)reported a 53 percent surge in fourth-quarter profits due to improvements in its homebuilding process and a record number of homes built for the year. Lennar, which beat Wall Street profit forecasts by 20 cents per share, added $1.91 to $62.49.
Bear Stearns Cos. Inc. (BSC) gained $6.02, or 5.4 percent, to $116.52, a new 52-week high, after the investment firm said strong stock trading and clearing revenues led to a 15 percent jump in profits for the fourth-quarter, setting a new quarterly record. Bear Stearns beat analysts' estimates by 27 cents per share.
Rival Wall Street firm Goldman Sachs Group Inc. (GS), while posting a record 2005, missed analysts' full-year profit projections, and its quarterly profits merely met Wall Street's forecasts. Goldman Sachs slid $1.40 to $128.23.
Fresh merger activity also drew investor interest. Collegiate Funding Services Inc. (CFSI) surged $4.31, or 28 percent, to $19.58 after JPMorgan Chase & Co. said it would buy the education loan provider for $633 million, or $20 per share, in cash. JPMorgan Chase lost 2 cents to $39.53.
North Carolina bank BB&T Corp. (BBT) slipped 29 cents to $42.88 after announcing the purchase of Atlanta-based Main Street Banks Inc. in an all-stock deal for $622.7 million, or $28.51 per share. Main Street Banks fell 72 cents to $28.01.
Declining issues outnumbered advancers by about 2 to 1 on the New York Stock Exchange, where volume came to 1.21 billion shares, compared to 1.25 billion at the same point on Wednesday.
The Russell 2000 index of smaller companies fell 7.80, or 1.13 percent, to 682.70.
Overseas, Japan's Nikkei stock average tumbled 1.36 percent. In Europe, Britain's FTSE 100 closed down 0.47 percent, France's CAC-40 slipped 0.04 percent for the session, and Germany's DAX index rose 0.17 percent in late trading.
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