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Stocks broke a three-session run of gains, after a rise in oil prices, a falling dollar and a disappointing sales forecast from Wal-Mart Stores Inc. raised questions about the outlook for inflation and economic growth. The Dow tumbled 184, Nasdaq sank 2% as investors worried about slowing growth. The outlook appears bleak ahead of a week packed with economic news.

Today, the Dow Jones industrial average closed down 184.18 or 1.6% to 11,094.43, the broader Standard & Poor’s 500 index closed down 1.6% and the Nasdaq composite index closed down 45.63 or over 2% to 2,164.74. These declines were the third-biggest in point terms for all three major gauges.

Market breadth was negative. On the New York Stock Exchange, decliners beat advancers by a margin of three to one on volume of 1.5 billion shares. On the Nasdaq, losers also beat winners by a margin of three to one as 1.7 billion shares changed hands.

It is evident that the investors continue to be uncertain; and when there is uncertainty the markets move lower. History shows that in 2004 there were three pullbacks in the market and the average of those three pullbacks was 7.4%. When transposed to the current situation, the S&P may fall from its peak of 1,326 to a target of 1,230. The key factors for the sell-off today were higher oil prices and Wal-Mart’s May sales forecast. It is feared that the low-income consumer is finally succumbing to gas prices. Economist predict that the market will remain volatile over the next month as investors pore over each upcoming economic report for clues on the future outlook for interest rates. Additionally, President Bush has nominated Henry Paulson, chairman and chief executive of Goldman Sachs Group, to replace John Snow as Treasury secretary. There had been speculation Paulson wasn’t interested in the job and the pick came as a bit of a surprise, but the choice shouldn’t rattle investors too much.

Amongst data news, consumer confidence slipped with the index falling to 103.2 in May from a revised 109.8 in April. However, this decline was not as steep as was expected. Economists had expected the index to slip to 100.7.

Shares of Wal-Mart were down 2.7% to $48.30, after the world’s No. 1 retailer said higher gas prices left its May sales gain at the low end of its earlier guidance. It expects same-store sales to show a 2.3% increase for this month, below the average Wall Street estimate. Wal-Mart continues to see higher gasoline and utility prices impacting its customers. As a result, the company has seen more pronounced paycheck cycles.

Shares of General Motors fell 5.4% down $1.26 to $26.57. Deutsche Bank cut the stock to sell, citing valuation and concern about moderating retail vehicle sales. The drop came after the troubled automaker rallied last week on upgrades by Merrill Lynch and Prudential.

Shares of Kinder Morgan surged more than 18% after senior management of the gas and oil pipeline operator announced plans to take the company private for $100 a share, a premium of about 18.5% over its closing price Friday. This deal would be worth $13.4 billion.

Crude futures rose to a more than two-week high as traders looked ahead to a meeting of the OPEC in Caracas, Venezuela, this week. A serious consideration of output reductions could further rally prices. U.S. light crude for July delivery jumped 66 cents to settle at $72.03 a barrel on the New York Mercantile Exchange.

All the best,
Manuel Jesus-Backus
The Portfolio Crafter