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[BRIEFING.COM] The market closed modestly lower as mixed economic and earnings data left investors waiting for tomorrow's CPI report to set a more definitive tone to trading.

With the market very concerned about any signs of inflation, a smaller than expected increase in prices at the wholesale level helped alleviate some worries of more rate hikes taking steam out of the economy and slowing the pace of earnings growth. The Labor Dept. showed that producer prices outside of energy remain under control, as the core PPI rose just 0.1% for a second straight month to leave the year/year increase at 1.5%.

Data showing that higher interest rates are clearly curtailing housing activity also added to the argument that the Fed should pause at the June 29 policy meeting. April Housing Starts checked in at the lowest level since Nov. 2004 and Building Permits also showed a third month of decline. The latter news knocked the PHLX Housing Sector Index (HGX -1.1%) to its worst levels since late November and prevented the rate-sensitive group to take advantage of another pullback in bond yields. To wit, the Treasury market rallied to its best two-day gain since January after sifting through proof that inflation remains well contained, knocking the yield on the 10-yr note down to 5.10%.

Be that as it may, concerns that an uptick in the core rate of inflation at the consumer level could roil the stock market acted as an overhang on equities throughout most of the day. Economists are currently forecasting the core CPI to rise 0.2%, but should April's data show a gain similar to the 0.3% in March, the financial markets could pick up where they left off last week, trading much lower. Also keeping market gains in check was the fact that Industrial Production jumped a stronger than expected 0.8% in April. While the push further into record territory reflects the strength in manufacturing, playing into our bullish outlook towards late-cycle stocks and Overweight ratings on Industrials and Basic Materials, the absence of leadership from two of this year's best performing sectors also kept buyers on the sidelines. It is also worth noting that Capacity Utilization rose to 81.9%, suggestive of increasing risk of production bottlenecks which could lead to pricing pressures.

As was the case last week, the Nasdaq continued to lead the way lower among the major averages since the tech-heavy index remains apt to bear the brunt of selling efforts as the jump in interest rates of late continues to spark valuation concerns, especially in growth stocks. Technology turned in the day's worst performance, extending its reach into negative territory for the year as concerns continued to mount for Hewlett-Packard (HPQ 31.16 -0.47), which was scheduled to report Q2 (Apr) earnings after the bell and just a week after rival Dell (DELL 23.78 -0.57) warned Wall Street that Q1 sales and profits would miss forecasts. Concerns that Apple Computer's (AAPL 64.98 -2.81) business may also be slowing also took a toll on tech.

Consumer Discretionary was another drag on stocks Tuesday, led by weakness in homebuilding, autos and retail. With regard to the latter, Home Depot (HD 38.45 -2.05) beat expectations but revenues checking in a bit light and signs of a cooling housing market resurfacing shaved more than 5% off of HD's market cap. Target (TGT 49.33 -0.69) being downgraded to Neutral at Merrill Lynch and General Motors (GM 25.53 -0.67) hitting its worst levels in more than a week after UAW members voted "overwhelmingly" to authorize a strike at Delphi if it voids contracts also weighed on the sector.

Two underperforming sectors -- Health Care and Consumer Staples -- however, garnered renewed enthusiasm based in part on their defensive-characteristics. The latter sector benefited from a 1.4% surge in Wal-Mart (WMT 48.07 +0.64), which beat expectations by two cents, while a rebound in Managed Health, Health Care Services and modest strength in Pharmaceutical helped Health Care chip away at its sector worst 3.0% year-to-date decline.
NYSE Adv/Dec 1665/1559...