Stocks Slide as Oil Surges
Stocks shed early gains to end mostly lower Wednesday amid increasing pessimism on Wall Street after oil prices reached another record high and a mix of data provided conflicting views on the economy.
The Dow Jones industrial average fell to a seven-week low, and the broader Standard & Poor’s 500 index dropped back into the red year to date.
Stocks initially moved higher after the government’s weekly report on energy supplies showed a strong buildup of heating oil and distillate inventories. But concerns about a drawdown in crude oil inventories and a tropical storm that threatened energy facilities in the Gulf of Mexico pushed crude prices to a record in afternoon trading and sapped the stock market’s strength.
Crude futures surged $1.61 to $67.32 a barrel in New York, surpassing the previous closing high of $66.86 set on Aug. 12.
On Wall Street, the Dow sank 84.71 points, or 0.8%, to 10,434.87, its lowest close since July 7.
The broader S&P; 500 and Nasdaq composite indexes also finished at seven-week lows. The S&P; fell 7.98 points, or 0.7%, to 1,209.59, falling back into negative territory for the year (down 0.2%, not counting dividends).
The technology-heavy Nasdaq index dropped 8.34 points, or 0.4%, to 2,128.91.
Losers outnumbered winners by 5 to 4 on the New York Stock Exchange and on Nasdaq.
The market’s momentum early in the session partly stemmed from the Commerce Department’s latest report on new-home sales, which rose to an annual rate of 1.41 million units in July, better than the 1.33-million rate that had been expected.
But the government also reported a 4.9% decline in orders for big-ticket manufactured goods in July, leading investors to wonder whether an economic slowdown was imminent.
“It’s not oil at new records by itself any more, it’s oil with economic numbers substantiating the impact that oil’s having on the economy,” said John Twomey, a stock trader at Merriman Curhan Ford & Co. “That’s creating some nervousness.”
Some investors turned to Treasury bonds, pushing prices up and yields down. The yield on the benchmark 10-year T-note eased from 4.18% Tuesday to 4.17%, the lowest since July 20.
The difference between the yields on two-year and five-year T-notes narrowed to 0.05 percentage point, with the two-year at 3.98% and the five-year at 4.03%. If the five-year yield were to fall below the two-year yield, it would constitute an “inversion” of the yield curve, in bond market parlance. That typically happens when investors fear a recession is on the horizon.
“There may be a sense that perhaps the oil price increase is beginning to bite a little bit,” said Jay Mueller, a bond fund manager at Wells Capital Management.
Among the day’s highlights:
* The report on durable goods helped drag stocks of many industrial companies lower. Heavy-equipment maker Caterpillar lost $1.48, or 2.7%, to $53.21 for the Dow’s worst performance. United Technologies, the maker of Pratt & Whitney jet-engine parts and Otis elevators, retreated 79 cents to $50.74.
But the July new-home sales report helped home builder stocks rebound from the previous session’s losses. Toll Bros. gained $2.07 to $50, KB Home jumped $1.24 to $72.20 and Lennar rose $1.17 to $60.10. Yet even the housing report carried a caveat: although sales were up, the average price of a new home fell.
* Coach climbed $1.35 to $33.99 after the leather goods maker said its fiscal first-quarter profit would exceed Wall Street forecasts. The news suggested that high gasoline prices weren’t hurting luxury retailers.
On the flip side, shares of casual-dining chains slumped after Applebee’s International trimmed its 2005 earnings forecast. Some analysts said gas prices might be leaving average consumers with less to spend on dining out.
Applebee’s slid $1.68 to $22.37. Darden Restaurants, operator of the Red Lobster chain, dropped $1.50, or 4.6%, to $30.92 for the worst performance in the S&P; 500. Also sliding was Brinker International, parent of Chili’s. Its shares lost $2.02 to $38.15.
* Shares of Irvine-based Westcorp and its separately traded auto-lending subsidiary, WFS Financial, gave up some of their gains from the day before, when the stocks soared on news that Westcorp was considering a sale. Westcorp fell $1.16 to $63.35 and WFS dropped $1.17 to $68.13.
* Google gained $2.99 to $282.57. The company launched an instant messaging program aimed at competing with popular chat programs at rivals America Online and Yahoo.
* In currency trading, the U.S. dollar fell to $1.191 Canadian, down from $1.198 on Tuesday and a 2005 low. High oil prices are expected to bolster Canada’s energy exports. One U.S. dollar was worth $1.27 Canadian in May.
