Energy Stocks, Dow Rise on Oil Price Surge
Soaring oil prices lifted energy stocks Wednesday, helping to drive the Dow Jones industrial average closer to its record high.
Meanwhile, bond yields were mostly unchanged after the Federal Reserve Board reported on moderate economic growth in August. The dollar hit eight-week highs against key currencies.
On Wall Street, the 30-stock Dow index gained 27.74 points to 5,754.92, mostly on the strength of its three oil issues, Exxon, Texaco and Chevron.
In the broad market, winners topped losers by 13 to 11 on the Big Board, and most major indexes gained despite the potential for bad news in rising energy costs.
Crude oil futures reached their highest level since April, with the October contract on the New York Merc gaining 63 cents to $24.75 a barrel. Heating oil futures hit their highest level in nearly five years.
The growing conflict between the United States and Iraq suggests that the return of Iraqi oil to world markets will be indefinitely delayed. That will help support oil prices near current levels or even take them higher, some experts say.
The conflict comes as many refineries are operating on low inventories, having expected that Iraq would have already been selling oil under an agreement with the United Nations to raise money for food. The U.N. suspended implementing the agreement last week.
Yet the rise in oil prices, a potentially inflationary event, didn’t ruffle the bond market much on Wednesday. Yields closed mostly flat, with the 30-year Treasury bond yield ending at 7.11%, same as Tuesday.
Bond traders focused on the Fed’s economic review, which showed continued moderate growth in August but also indicated that wage growth is accelerating because of tight labor markets in many regions.
Faster wage growth could lead to higher general inflation in the economy. The wage outlook is expected to be the key focus of the Fed’s rate-policy meeting on Sept. 24, when many economists expect the central bank will boost short-term interest rates to begin braking the economy’s pace.
However, experts point out that a rate hike still isn’t certain. Bond traders on Wednesday seemed to be biding their time, waiting for more clues to the inflation outlook. The government today reports on August wholesale inflation and on Friday reports on August consumer inflation.
Meanwhile, currency traders appear to be betting on higher U.S. interest rates, pushing the dollar to eight-week highs Wednesday. The greenback rose to 110.20 Japanese yen in New York, up from 109.80 on Tuesday. Against the German mark, the dollar was flat at 1.511, though that was up from 1.48 a week ago.
Fears about a wider Mideast conflict also may be boosting the dollar as global investors look for “safe haven” currencies.
As for the stock market, investors seem surprisingly sanguine about both the energy and interest-rate outlooks. The Dow’s latest climb left it just 25 points shy of its record high of 5,778.00 set on May 22. Among broader indexes, the Nasdaq composite index of mostly smaller stocks rose 4.52 points to 1,153.95.
“I think the rally continues on,” said Ken Ducey, director of trading at BT Brokerage. “People are looking to 6,000 on the Dow,” he said, on the assumption that neither higher oil prices nor a modest credit tightening by the Fed will severely hurt the economy or corporate profits.
Among Wednesday’s highlights:
* In the energy sector, Exxon rose 1 1/2 to 84 7/8, Texaco gained 1 7/8 to 94 5/8, Chevron added 1 1/8 to 61 1/2 and Unocal was up 5/8 to 36 5/8. (Investor Spotlight, D6.)
Drilling and natural gas issues also rose. Halliburton jumped 1 1/2 to 55 7/8, Western Atlas surged 1 5/8 to 63 and Sonat added 7/8 to 45 1/8.
* Motorola slumped 1 3/8 to 49 1/4 after warning of weaker earnings, but that failed to shake most other tech shares. Intel added 11/16 to 85, Texas Instruments inched up 3/8 to 45 3/4 and Western Digital jumped 1 3/8 to 37 5/8.
However, silicon wafer manufacturer MEMC Electronic Materials slumped 8 1/2 to 20 3/4 after warning of shortfalls in third- and fourth-quarter sales.
* Consumer growth stocks gaining included Nike, up 2 7/8 to 117 1/2, and Clorox, up 1 to 96 3/4.
* Some HMO stocks rallied. United Healthcare gained 1 1/2 to 40 1/8, Oxford Health leaped 3 1/8 to 44 1/4 and Foundation Health was up 1 to 32.
* Among Southland issues, eye wear maker Oakley fell 2 1/2 to 46 1/2 despite declaring a 2-for-1 stock split. Steel-service firm Reliance Steel was unchanged at 32 7/8. It said third-quarter earnings will be above year-ago results but below the second quarter’s number.
In foreign trading, Mexico’s Bolsa index eased 6.29 points to 3,302.98.
In Tokyo the Nikkei-225 index continued to inch higher, closing at 20,571.
Market Roundup, D5
