Wall Street stumbled Tuesday after oil prices spiked to a new record above $129 a barrel and a government report raised investors' concerns about the effect of inflation on consumer spending.
Crude jumped after OPEC's president was quoted as saying his organization won't raise its output before its next meeting in September. That sent a barrel of light, sweet crude to a trading high of $129.60 before it finished at $129.07 a barrel on the New York Mercantile Exchange.
Meanwhile, the Labor Department's producer price report indicated higher energy and food prices might be seeping into other parts of the economy, compounding investors' concerns raised by higher oil. Wall Street is worried that a dropoff in consumer spending could ensue if wholesale price increases are passed along; consumer spending is critical because it accounts for more than two-thirds of the U.S. economy.
Analyst Stephen Leeb thinks escalating oil prices have replaced the health of the financial sector as the market's biggest worry. He said rising energy creates a "very vicious circle" through the economy, and thinks the government must take some kind of action to bring down prices.
"Stock investors are watching oil, period," said Leeb, whose Leeb Capital Management focuses on crude and its effect on equities. "The events that moved the market before revolved around writeoffs and foreclosures, but all that's changed."
The retreat in major indexes reversed the optimism of last week, when stocks rose on a growing belief that the economy is managing to plod along despite worries about oil prices and the global credit crisis.
The loss showed that the market has yet to shake off the volatility that has plagued it since the credit crisis began last summer.
The mood on Wall Street was further depressed Tuesday by sluggish retail reports and comments from Federal Reserve Vice Chairman Donald Kohn that policymakers are inclined to hold interest rates steady.