Dow Sinks 44.31 Points on War Fears, Oil Price
Stocks fell sharply today, hurt by renewed fears of war in the Middle East that drove oil prices higher.
The Dow Jones average of 30 industrials tumbled 44.31, or 1.8%, to 2,440.84.
Declining issues outnumbered advances by about 5 to 2 on the New York Stock Exchange, with 452 up, 1,117 down and 440 unchanged.
Big Board volume totaled 149.13 million shares, against 141.13 million in the previous session.
Oil prices surged above $35 a barrel today as fears of a war in the Persian Gulf swept through the market.
Crude oil for December delivery was up a strong $2.77 to $35.40 on the New York Mercantile Exchange with half an hour left to trade. Refined oil prices were also sharply higher, with December heating oil up 6.22 cents to 92.60 cents a gallon.
“There’s almost a total consensus we’re going into military activity in November,” said Peter Beutel of Pegasus Econometrics. “I think the groundwork is being laid and the next provocation will be used as a premise for invading.”
With the U.S. elections out of the way, many traders view war as increasingly likely.
“There are intensified rumors the U.S. may go into war really soon now that elections are over,” said Marc Scullion, an analyst with Gerald Commodities Inc.
This view was intensified by British Prime Minister Margaret Thatcher’s warning that time was running out for Iraq to withdraw from Kuwait.
“The market jumped about 50 cents on Thatcher’s statement,” one trader said.
Thatcher told Parliament that sanctions against Iraq had been given three months to work and yet there was no sign Iraq was loosening its grip on Kuwait.
Prices were rising before Thatcher’s statement on a rumor, later denied, that Secretary of State James A. Baker III had passed an ultimatum to Iraq through a Chinese official.
Oil prices also rose on the market’s ability to shrug off a bearish report of a buildup in crude oil stocks. The American Petroleum Institute reported late Tuesday that U.S. crude stocks rose 5 million barrels last week to 344.5 million barrels.
Falling bond prices also hurt the stock market. The bond market was nervous because of the Treasury Department’s huge sale of new government debt this week.
The refunding encompasses a record $34.25 billion in securities with lives ranging from three years to just under 30 years.
Investor demand for that enormous supply apparently has been bolstered by expectations of new moves soon by the Federal Reserve toward a relaxation of its monetary policy.
Talk has spread in the past week or so that the Fed is worrying more about countering the effects of recession and less about combating inflationary pressures.
Browning-Ferris Industries fell 2 1/8 to 22 1/8 by midafternoon on top of a 6-point plunge Tuesday, when the company reported a 55% quarterly earnings decline.
MCA had dropped 1 1/4 to 61 3/4 following a big fire overnight at the company’s Universal Studios. MCA said it believed its loss was fully covered by insurance.
