Stocks Fall on Dollar, Oil Concerns
Soaring oil prices and a slumping dollar sparked a sell-off on Wall Street on Tuesday, sending the Dow Jones index down 174 points -- its steepest one-day point drop in nearly two years.
Investors returned from the holiday weekend in a selling mood as crude futures zoomed above $51 a barrel and the dollar slid on reports that South Korea might shy away from buying more U.S. Treasury securities.
The action in oil prices was a reminder of how much that market had vexed Wall Street for most of 2004. The price peaked above $55 a barrel in October, then slumped in November and December, and the slide late in the year had helped re-energize stock prices.
“A few weeks ago, oil was in the low $40s and everybody was feeling better about stocks,” said Al Goldman, chief market strategist at brokerage A.G. Edwards & Sons in St. Louis.
Meanwhile, the dollar’s renewed decline triggered fresh concerns that foreign investors might become unwilling to continue pumping badly needed capital into the U.S. economy. Facing record budget and trade deficits, the nation is heavily dependent on foreign money.
The Dow Jones industrial average fell 174.02 points, or 1.6%, to 10,611.20 as 29 of the 30 stocks in the index lost ground. Besides being the biggest one-day point loss for the Dow since May 2003, it was the largest percentage decline since Aug. 5 of last year.
The broader Standard & Poor’s 500 index sank 17.43 points, or 1.5%, to 1,184.16. And the technology-heavy Nasdaq composite dropped 28.30 points, or 1.4%, to 2,030.32.
Declining shares outnumbered gainers by more than 3 to 1 on the New York Stock Exchange and by more than 2 to 1 on Nasdaq. The market began to slide in midmorning and mostly headed lower the rest of the day.
Although the oil and dollar moves were unwelcome surprises, Goldman and other analysts said blue-chip stocks, in particular, were ripe for profit taking after rallying modestly this month.
The Dow last week reached 10,837, nearing the 3 1/2 -year high of 10,854 set on Dec. 28.
On Tuesday, crude oil futures in New York jumped $2.80 to $51.15 a barrel as commodity traders reacted to colder Northeast weather and to the dollar’s setback. Because oil is denominated in dollars worldwide, a weaker greenback effectively cuts the price of crude for countries with stronger currencies, which in turn could mean stronger energy demand.
In currency trading, the euro jumped to a seven-week high of $1.326 in New York from $1.307 on Friday. The dollar fell to 104.09 yen from 105.64 on Friday. All U.S. financial markets were closed Monday in observance of Presidents Day.
Traders pounded the dollar after the Bank of Korea said it planned to shift more of its financial reserves into securities denominated in currencies other than the dollar. That could reduce demand for Treasury securities in particular, analysts said.
The dollar’s new woes weighed on the bond market, which typically rallies on days when money is exiting stocks. Instead, the yield on the benchmark 10-year Treasury note rose to a seven-week high of 4.29% from 4.27% on Friday as bond prices slipped.
Today, news on two fronts could affect the markets’ near-term direction, said Tom Hanson, portfolio manager at Pacific Global Investment Management Co. in Glendale: The government will release its consumer price index report for January, and the Federal Reserve will release the minutes of its Feb. 2 meeting.
Economists were expecting today’s CPI report to show a rise of just 0.2%, but investors were spooked Friday when data on January wholesale prices showed “a surprising glimpse” of higher inflation, Hanson said. The so-called core wholesale inflation index jumped 0.8%, its biggest rise in six years.
Meanwhile, the Fed’s meeting minutes could provide new clues as to whether policymakers are likely to continue their program of “measured” hikes in short-term interest rates to keep inflation in check, Hanson said.
Among Tuesday’s market highlights:
* Interest-rate-sensitive stocks led the market lower on concerns that a falling dollar could force the Fed to tighten credit at a faster pace to defend the U.S. currency.
The Dow utility stock index sank 9.46 points, or 2.7%, to 342.91. Real estate investment trust shares also slumped: A Bloomberg News index of 151 REIT shares lost 2.5%.
Home builders’ shares were broadly lower. Pulte Homes dropped $2.68 to $66.85 and Ryland Group fell $3.01 to $64.22.
* Health maintenance organization stocks tumbled. Long Beach-based Molina Healthcare slid $3.44 to $43.01 after the firm said late Friday that it expected to earn $2.40 to $2.45 a share this year. Analysts surveyed by Thomson First Call had expected $2.45 a share.
Among other HMOs, WellPoint gave up $4.45 to $116.50 and UnitedHealth lost $2.15 to $86.90.
* Merck retreated $1.40 to $31.21 after rallying Friday when a government panel said the company’s controversial painkiller Vioxx could be returned to the market.
Also in the drug sector, Novartis gained $1.56 to $50.46. The company said Monday that it would spend $8.3 billion to buy two generic drug firms.
* Gold mining shares rallied as the dollar’s slide boosted the metal’s allure as an investment alternative. Near-term gold futures in New York jumped $7.40 to $434.50 an ounce.
Newmont Mining surged $2.03 to $44.50 and Barrick Gold gained 97 cents to $25.
* Domino’s Pizza gained 56 cents to $17.67 after boosting its dividend 54% and reiterating its 2005 outlook despite reporting fourth-quarter profit that missed analysts’ expectations.
