Resurgent Oil Prices Exact a Toll on Wall St.
Blue-chip stocks extended their losses Thursday as oil prices continued to rise, renewing Wall Street’s concerns that high energy costs would deflate consumer spending and corporate earnings.
The Dow Jones industrial average fell 70.28 points, or 0.7%, to 10,038.90, the second straight day of losses. The Dow lost more than 135 points Wednesday, and is at its lowest level since Aug. 17.
Broader stock indicators were mixed. The Standard & Poor’s 500 index was down 5.20 points, or 0.5%, at 1,108.36, while the Nasdaq composite index gained 0.72 point, or 0.04%, to 1,886.43.
Losers outnumbered winners by 6 to 5 on the New York Stock Exchange and Nasdaq.
A barrel of light crude settled at $48.46 on Thursday in New York, up 11 cents, after reaching an intraday high of $49.
Crude futures closed at a record high $48.70 on Aug. 19 and set a intraday record of $49.20 on Aug. 20.
Analysts said oil prices would keep consumer spending down and business costs rising, a combination that would squeeze profit margins and lower third-quarter earnings.
Price pressures could ease today, however, after the Bush administration announced Thursday it would provide U.S. refineries with “limited quantities” of crude oil from the nation’s emergency stockpile to help offset supply disruptions along the Gulf Coast from Hurricane Ivan.
Oil prices also were blamed, in part, for a lower reading on the Conference Board’s index of leading economic indicators, the third straight monthly decline. Investors believed the forward-looking index sent a signal that economic growth had been slowing and would probably taper off through the end of the year.
“When you take a look at the leading economic indicators, it’s very clear that the price of oil is having an impact on the economy,” said Hugh Johnson, chief investment officer at First Albany Corp. “Just look at the negative earnings statements from some of the most stable companies out there. If the markets are going to move higher, we’re going to need some relief on the oil front so that the earnings picture improves.”
Investors’ concerns about job growth -- and the resulting consumer spending -- increased as the Labor Department reported a 14,000 increase in first-time jobless claims for the week. Although the hurricanes in Florida were blamed for the jump, investors have been hoping for a return to this spring’s strong job growth as a sign of strength in the economy.
“This kind of data doesn’t help because it just adds to the uncertainty that the markets are dealing with,” said Jay Suskind, head trader at Ryan Beck & Co.
In the bond market, the negative economic news was tempered by an upbeat ring to the Federal Reserve’s Open Market Committee’s August minutes, which were released Thursday. The minutes said that economic softness would be “short-lived” and that the economy was poised for stronger growth.
The yield on the benchmark 10-year Treasury note rose to 4.02% from 3.98% on Wednesday.
The two-year T-note rose to 2.52% from 2.46%.
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In other market highlights:
* Fannie Mae lost $3.54 to $67.15, bringing its two-day slump to 11%. The largest U.S. mortgage finance company may have to restate its earnings based on Wednesday’s regulatory report that found the company violated accounting rules, one analyst wrote in a report.
Freddie Mac, the chief rival of Fannie Mae, fell $2.02 to $64.38.
* One day after Morgan Stanley’s disappointing earnings dragged on the brokerage sector, A.G. Edwards reported results that also fell short of expectations. The company’s stock edged 12 cents higher to $34.60 even though A.G. Edwards missed estimates by 3 cents a share. Morgan Stanley rebounded 80 cents to $49.52.
* A downgrade of the entire petroleum sector by Deutsche Bank weighed on energy stocks and particularly on Exxon Mobil, which was separately downgraded by the brokerage firm because it believed that the stock had limited potential to move higher.
Exxon Mobil dropped $1.10 to $47.76, ChevronTexaco fell 82 cents to $52.32 and Occidental Petroleum lost $1.06 to $54.52.
* Martha Stewart Living Omnimedia jumped $2.57 to $17.55 on the news, announced after the market close Wednesday, that it inked a deal with “reality” TV producer Mark Burnett to produce shows.
* Stamps.com fell $1.69 to $13.56. The Santa Monica company, which sells postage stamps over the Internet, said a trial of a custom photo service with the Postal Service might be suspended after the pilot period ends Sept. 30. Investors are concerned that an end to the service might crimp the company’s profit.
* Among tech shares, Yahoo gained 57 cents to $33.04, Broadcom rose 63 cents to $28.86 and Google jumped $2.44 to a record $120.82.
* Computer Associates International jumped $1.60 to $26.90 after agreeing to restitution and probation to settle fraud conspiracy charges. Former Chairman Sanjay Kumar pleaded not guilty to charges that he helped orchestrate a $2.2-billion accounting fraud.
