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Investors remained nervous about the prospects for more interest-rate increases as most recent indicators show inflation in check and the economy growing at a solid pace. This led the markets to close lower with investors shrugging off a mixed bag of earnings reports. Early in the session stocks climbed higher as investors cheered signs that inflation may be under control, but turned South as disappointing sales from retailers overshadowed the economic reports.

Today, the Dow Jones industrial average closed down 8.88 or 0.1% to 11,419.89, the broader Standard & Poor’s 500 index closed down 2.42 or 0.2% to 1,292.08, and the Nasdaq composite index closed down 9.39 or 0.4% to 2,229.13. This is the lowest close for year for the Nasdaq.

Market breadth was positive. On the New York Stock Exchange, advancers topped decliners 16 to 15 on volume of 1.7 billion shares. On the Nasdaq, winners narrowly edged out losers 15 to 14 as 2.1 billion shares changed hands.

Today was a data driven day with the producer price report calming inflation fears, while the industrial production data showed the economy running at a decent pace. U.S. producer prices rose 0.9% in April, due to surging energy prices, but prices outside of energy were well contained. This is against the expected increase of 0.8%. The core producer price index for finished goods rose 0.1%, a hopeful sign that higher energy prices haven’t led to a more generalized inflation. This is against the expected 0.2% increase. Additionally, the housing market may be slowing, with housing starts dropped 7.4% in April. This is the largest drop in more than a year.

Home Depot closed down $2.05 or over 5% to $38.45, after reporting a better-than-expected gain in earnings but stating that sales at retail stores were soft. While profit increased 19%, sales fell short of analysts expectation. The company has decided not to provide same-stores sales data.

Stock of Wal-Mart Stores closed up $0.64 or 1.4% to $48.07, on posting improved earnings in the fiscal first quarter. The company posted a 6.3% increase in first-quarter profit on sales, in line with estimate. The strong performance is attributable to keeping inventory in check and to its new-fashioned merchandise.

Shares in Apple Computer Inc. fell 4.2% to $64.98 after Creative Technology Ltd. filed a complaint with the U.S. International Trade Commission, claiming the maker of the market-leading iPod media player infringed on Creative’s patents for some of its own music-playing devices. Creative shares rose 4.8% to $5.72. This battle is likely to continue for a while.

Stock of Staples closed down $1.60 or 6% to $24.82, after the office supply retailer posted higher quarterly profit despite slow sales growth in North American stores. Carnival closed down $3.94 or 8.5% to $42.60, after cutting its outlook because of higher fuel costs and weakness in demand for Caribbean cruises. DOV Pharmaceuticals closed down $4.03 or 57% to $3.02, after the drug-maker said that its first-quarter loss more than doubled as revenue fell and research and development expenses rose. Shares of Neurocrine Biosciences closed down $33.87 or 62% to $20.76, after announcing its sleep drug, which it is developing with Pfizer, was rejected by regulators.

Crude oil for June delivery closed 12 cents higher at $69.53 a barrel on the New York Mercantile Exchange.

All the best,
Manuel Jesus-Backus
The Portfolio Crafter