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Recent Market Slide Erases Dow's Yearly Gains

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The Dow Jones industrial average is now in negative territory for the year. A recent sell-off, which continued Tuesday, has wiped out solid gains made in the first months of 2006. Just a month ago, the Dow was in sight of its all-time high.


The business news begins with a jittery stock market.

Consumer prices were on the rise, again, in May. Higher costs for rents and gasoline helped push overall prices up by four-tenths of a percent. Concerns about inflation, along with higher interest rates are making for a sour mood on Wall Street. Yesterday, the Dow Jones Industrial Average lost another eight-tenths of a percent, it's now lower than it was at the start of the year.

NPR's Jim Zarroli reports.

JIM ZARROLI reporting:

Just a month ago, the Dow was within striking distance of its all-time high of 11,722. But in the weeks since then, the markets have been consumed by fears abut inflation; fears that have intensified following hawkish comments by Federal Reserve officials.

There's a lot of concern that inflation pressures are growing at a time when the economy is slowing down. As a result, prices have tumbled.

Yesterday the government released a report saying core wholesale prices were a bit higher than expected, and stocks fell even more. The Dow is now at just a bit more than 10,700, a decline of about eight percent in a month.

The NASDAQ Composite Index has fallen 12 percent since mid-April.

Mr. JIM PAULSEN (Chief Investment Strategist, Wells Capital Management): We're really trading on momentum and emotion.

ZARROLI: Jim Paulsen, Chief Investment Strategist at Wells Capital Management, says inflation fears don't fully explain what's happening in the markets right now.

Mr. PAULSEN: I think that a little bit of panic has set in, and when you get to this point in the marketplace, it sort of leaves rationality. It sort of quits trading on fundamentals, if you will, and starts trading on emotion and direction and momentum.

ZARROLI: Paulsen notes that oil prices fell yesterday, and so did bond yields, which stock investors normally like. There were also better than expected earnings reports from Goldman Sachs and Best Buy. But none of that seemed to make much difference to the markets.

After U.S. stocks tumbled on Monday, it caused new jitters in Asia and Europe about where the global economy is headed, and stock prices fell in those regions. That in turn may have dragged U.S. markets down even further yesterday.

Jim Paulsen says the U.S. stock markets may be in a kind of negative feedback loop with other markets, and as long as this persists, no one can really say whether the market has bottomed out.

Jim Zarroli, NPR News, New York.

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