Stocks Fall for 3rd Day as Oil, Rates Rise
Stocks fell for a third straight session Monday as oil prices soared to record highs and as Treasury bond yields continued to rise.
Some investors also were taking money off the table ahead of today’s Federal Reserve meeting. Policymakers were expected to lift their benchmark short-term rate for a 10th time since June 2004.
After rising modestly at the opening of trading, Wall Street retreated as crude prices jumped $1.63 to settle at $63.94 a barrel on the New York Mercantile Exchange after a warning by the U.S. Embassy in Saudi Arabia that there was a “threat against U.S. government buildings in the kingdom.”
It was the second alert from the embassy in two weeks.
Gasoline futures also hit a record high of $1.86 per gallon on Nymex, adding to investors’ concerns that the economy’s strong pace of recent months could be slowed by energy costs.
“The combination of rising interest rates and record energy prices has finally taken its toll on the stock market,” said Michael Sheldon, market strategist at Spencer Clarke, a brokerage in New York. It “will probably put a bit of a brake on the economy. Investors have the right to be a little nervous.”
Still, losses in broader share indexes were relatively minor. Real-estate-related shares and utility issues bore the brunt of the selling.
The Dow Jones industrial average eased 21.10 points, or 0.2%, to 10,536.93. It has fallen 161 points since Wednesday.
The Standard & Poor’s 500 slipped 3.29 points, or 0.3%, to 1,223.13.
The technology-dominated Nasdaq composite fell 13.52 points, or 0.6%, to 2,164.39.
Losers outnumbered winners by more than 3 to 2 on the New York Stock Exchange.
The S&P; and Nasdaq indexes hit four-year highs early last week. But stocks slumped Thursday and Friday amid worries that the economy’s strength would continue to drive up interest rates.
The Fed today is expected to raise its key short-term rate from 3.25% to 3.5% and signal that it isn’t finished tightening credit.
Investors sold Treasury bonds Monday, pushing yields on shorter-term issues to fresh four-year highs. The two-year T-note rose to 4.15%, up from 4.11% on Friday and the highest since July 2001.
The 10-year T-note ended at 4.43%, up from 4.39% on Friday and the highest since April 11.
Demand was unimpressive at the Treasury’s sale of $18 billion in new three-year notes, traders said. The notes’ yield was 4.2%.
Interest rate worries weighed on property-related stocks, including real estate investment trusts and home builders, which led the market lower.
Utility stocks also were hit. The Dow utility index slumped 7.69 points, or 1.9%, to 388.22.
In the Internet sector, Chinese search engine Baidu.com rose as high as $153.98, continuing its surge after going public Friday at $27 a share. But the stock fell near the close and finished down $7.04 to $115.50.
On Wall Street, announced, pending or rumored takeover deals provided much of the day’s good news:
* E-Trade Financial climbed $1.24 to $16.10 after the discount brokerage said it would pay $700 million to buy Harrisdirect from Bank of Montreal.
* Quest Diagnostics, which operates medical-testing laboratories, rose $1.71 to $49.21 after saying it would acquire LabOne in a cash transaction valued at $934 million. LabOne rallied $5.18 to $42.82.
* Shares of Whirlpool gained $2.75 to $82.46, after it sweetened its offer for Maytag to $1.6 billion, or $20 a share, topping a bid from Ripplewood Holdings. Maytag jumped $1.60 to $18.58.
* Kerr-McGee rose $3.03 to $85.01 after the company agreed to sell its North Sea energy assets for $3.5 billion after a proxy battle with billionaire investor Carl Icahn saddled it with debt.
* Rumors that the management of San Francisco-based Gap would take the clothing retailer private pushed its shares up 73 cents, or 3.5%, to $21.35 and prompted heavy buying of options as investors bet on more gains in the stock, traders said.
“There’s a rumor on trading desks that management will take the Gap private at a cash bid of $28,” said Jon Najarian, founder of InsideOptions.com, a financial website.
Gap, which operates the Gap, Banana Republic and Old Navy chains, declined to comment.
“The acquisition story helps get investors more invested in stocks and interested in stocks,” said John P. Waterman, chief investment officer at Rittenhouse Asset Management.
