Stocks Dive as Oil Hits $61 on Supply Fears
Stocks tumbled Wednesday as oil prices climbed to a new record on fears of refining shortages and caused investors to look past a report showing strong growth in the service sector of the economy. The Dow Jones industrials dropped more than 101 points.
Oil closed above $61 per barrel for the first time as investors worried that Tropical Storm Cindy would hurt production in the Gulf of Mexico and refinery capacity along the coast. Reports of power outages at two Valero Energy refineries heightened investors’ fears. A barrel of light crude settled at $61.28, up $1.69, in New York trading.
Restaurant chains such as Darden Restaurants and IHOP slumped after a stock analyst said rising gasoline prices might cut into their customers’ dining budgets.
“The biggest damper on the markets right now is oil,” said Giri Cherukuri, head trader at OakBrook Investments in Lisle, Ill.
The Dow fell 101.12 points, or 1%, to 10,270.68 after rising 68 points Tuesday.
Broader stock indicators also fell. The Standard & Poor’s 500 index was down 10.05 points, or 0.8%, at 1,194.94, and the Nasdaq composite index lost 10.10 points, or 0.5%, to 2,068.65.
Declining issues outnumbered advancers by nearly 4 to 3 on the New York Stock Exchange.
The Institute for Supply Management’s services index for June came in at 62.2, higher than the 58.9 economists had expected and better than May’s 58.5 reading. Optimism about the U.S. economy pushed the dollar to an 11-month high against the Japanese yen, although the greenback lost ground against the euro.
“The services report was a very pleasant surprise, and added to generally positive economic data,” said Michael Sheldon, chief market strategist at Spencer Clarke. “But then you have oil, which could slow the economy.”
Although the Labor Department’s job creation report Friday and the first wave of second-quarter earnings next week should clarify matters, the markets will have little impetus to move higher until then.
U.S. Treasury yields fell, reflecting higher bond prices after two sessions of steep losses. The yield on the benchmark 10-year note slid to 4.07%, from 4.11% on Tuesday.
Traders said market moves were mostly technical this week, reflecting a tug-of-war between bullish and bearish chart watchers.
In other market highlights:
* Valero Energy dropped $1.46 to $83.50 after the company said the outages would slightly reduce oil refining capacity. Global demand for oil and distillates have threatened to overtake supply, and any reduction in refining capacity is seen as pressure on crude futures.
Meanwhile, an index of energy shares lost 1.8%, a day after it reached a record. Exxon Mobil slid $1.03 to $59.11, and Chevron fell $1.26 to $59.98. Investors may be anticipating a retreat in energy prices, said Rick Campagna at Shaker Investments in Cleveland.
* Darden, the operator of Olive Garden and Red Lobster restaurants, lost $1.06 to $31.76. Glendale-based IHOP, the owner and franchiser of International House of Pancakes restaurants, dropped $2 to $41.40.
Such companies with above-average exposure to “moderate-income consumers” may be hurt by oil prices of $60 a barrel, Raymond James analyst Bryan Elliott wrote in a note to clients.
Along with Darden and IHOP, Elliott downgraded California Pizza Kitchen to “outperform” from “strong buy.” Shares in the Westchester-based company fell 37 cents, to $26.54.
* Amgen increased $1.09 to $63.60. The company said a study showed one of its drugs for cancer and kidney disease also may help patients with bone marrow disorders.
* Shares in Charles Schwab rose 54 cents, to $11.98 amid talk that it could be the next target of consolidation among online brokers. Spokesmen for Schwab and E-Trade Financial Group, which has been rebuffed in its efforts to acquire Ameritrade Holding, declined to comment. E-Trade added 33 cents to $14.45.
