Dow Ends Session Below 10,000
Oil prices reached a new high and sent stocks lower Monday, pushing the Dow Jones industrials back below 10,000. But with trading on Wall Street light and losses only moderate, investors seemed to be coming to terms with near-$50-per-barrel crude.
Higher oil prices pose a threat to corporate profits. However, some analysts asserted that Wall Street, which sold off substantially last week in response to oil’s climb, had found a bottom and that a year-end rally might be possible.
“Clearly we’ve had oil putting a lot of pressure on this market over the past week or so, but given where oil is right now, we would’ve expected the market to react even more negatively than where it is,” said Brian Belski, market strategist at Piper Jaffray. “With productivity and earnings still pretty strong and inflation tame aside from oil and gas, we think the market still is set up for a positive move in the fourth quarter.”
The Dow Jones industrial average fell 58.70 points, or 0.6%, to 9,988.54. It was the Dow’s lowest close since Aug. 17, when it last closed below 10,000.
Broader stock indicators were moderately lower. The Standard & Poor’s 500 index was down 6.59 points, or 0.6%, at 1,103.52, and the Nasdaq composite index dropped 19.60 points, or 1%, to 1,859.88.
Declining issues outnumbered advancers by about 2 to 1 on the New York Stock Exchange.
A barrel of light crude settled at $49.64, up 76 cents. Oil producers and refiners are still struggling to recover from Hurricane Ivan’s damage in the Gulf of Mexico, and global demand continues to be strong, analysts say, making the markets susceptible to even minimal losses in overall production.
And investors worry that if prices rise at the gas pump, consumer spending might be pared back just as retailers prepare for the holiday shopping season.
However, given the relatively small drop in share prices Monday, investors may be accepting the fact that oil prices are in the $40 to $50 range, said Brian Pears, head equity trader at Victory Capital Management in Cleveland.
“Obviously, the closer to $40 we are, the better off we’ll be,” Pears said. “As you reach $50, you get the risk of speculation. But the inflation data over the past few months has been muted, and it doesn’t look like oil is going to have a big impact on the economy, just as long as we can stay at least steady at this price level.”
If oil can stay around $50 or less, investors probably will look ahead to third- and fourth-quarter earnings. And with expectations for the third quarter very low after a string of earnings warnings this month, there’s a chance the actual results will come as a pleasant surprise to Wall Street.
The Commerce Department reported that new-home sales rose 9.4% to 1.184 million units in August, a higher figure than economists had forecast. Though somewhat overshadowed by oil, the data showed that consumers were still willing to make big purchases even as the economy has slowed.
In other market highlights:
* U.S. Treasury yields fell on speculation the surge in oil prices may curb economic growth more than the Federal Reserve expects, leading to a slower pace of increases in the central bank’s benchmark interest rate next year. The yield on the benchmark 10-year note sank to 3.99%, from 4.03% on Friday.
* Rising fuel costs appeared to damp stocks of airlines. Delta shed 32 cents to $2.94. Continental Airlines slid 47 cents to $8.30. JetBlue Airways declined $1.31 to $20.56, AirTran Holdings lost 55 cents to $9.73 and Frontier Airlines slipped 22 cents to $7.35.
* Shares of Allstate, the second-largest home insurer in Florida, lost 84 cents to $47.41. Hartford Financial Services Group, another property insurer, shed $1.35 to $61.75. Hurricane Jeanne, which slammed into Florida’s coast over the weekend, may cause as much as $9 billion in insured damages, according to AIR Worldwide Corp. Jeanne adds to at least $14.2 billion in estimated damages from three hurricanes that hit the Southeast in the last seven weeks.
* Mortgage giant Fannie Mae climbed 99 cents to $66.50 after striking a deal with regulators in which the company agreed to investigate its top management and raise additional capital. Morgan Stanley downgraded Fannie Mae to “underweight” from “overweight” because of the investigation. Its rival, Freddie Mac, gained $2.23 to $66.82
