Markets Stable as Energy Stocks Rally
Wall Street stabilized Thursday, closing little changed as a rally in energy stocks and Viacom’s plans to split helped benchmark indexes weather record oil prices. Bond yields declined for a second session, as investors moved out of stocks and into less risky investments.
The major indexes fluttered through a narrow range for most of the day as investors eyed the highs and lows of oil prices. Near-term oil futures hit an intraday record of $57.60 before settling at $56.40, down 6 cents, in New York.
Richard Dickson, senior market strategist at Lowry’s Research Reports in Palm Beach, Fla., said it was encouraging that stocks did not fall further after Wednesday’s slide, which apart from oil was prompted by that day’s profit warning from General Motors.
“What’s fairly obvious, though ... is that we haven’t seen prices fall far enough to generate enough enthusiasm to make them break out of this funk,” Dickson said.
The Dow Jones industrial average fell 6.72 points, or 0.06%, to 10,626.35. The Dow, which lost 112 points on Wednesday, was held back from a larger gain by new tumult at big insurer American International Group and the outlook for GM.
The broader indexes managed narrow gains. The Standard & Poor’s 500 index was up 2.14 points, or 0.18%, at 1,190.21, and Nasdaq gained 0.67 point, or 0.03%, to 2,016.42.
Advancing issues outnumbered decliners by about 4 to 3 on the New York Stock Exchange.
The bond market drew safe-haven investors, pushing Treasury prices higher and their yields lower. The yield on the benchmark 10-year note sank to 4.47% from 4.51% on Wednesday.
Investors worry that high energy prices could hurt economic growth and yet stoke inflation, prompting the Federal Reserve to turn more aggressive in raising interest rates. The Fed is expected to raise its benchmark rate to 2.75% from 2.5% when it meets Tuesday.
Some investors are betting that current oil prices are an aberration caused by speculation and that prices will ease.
“I got my fingers crossed that inventories are going to build and OPEC is going to manage to squeeze out another million barrels a day,” said Henry Herrmann, chief investment officer at Waddell & Reed Financial.
Investors also were uncertain about Standard & Poor’s plan to rebalance its 500 index today to make it better reflect the number of publicly traded shares of each company.
For instance, the weighting of Microsoft will decrease because a large number of its shares are not available for trading. Exxon Mobil, already the largest stock in the index, will have its weighting increased because all its shares are publicly traded.
The change means funds based on the index will have to buy and sell stocks to make their holdings match the new weightings. Microsoft’s shares slipped 9 cents to $24.54, and Exxon Mobil rose $1.20 to $61.49.
Other energy shares gained, with Occidental Petroleum adding $1.76 to $72.76 and Marathon Oil gaining $1.04 to $46.90.
In other market highlights:
* GM fell 66 cents to $28.35 in a second day of selling after it substantially lowered its earnings forecasts, and AIG lost $2.10 to $60.80 after the Wall Street Journal reported the company may need to restate how it reported revenue on certain insurance policies.
* Viacom climbed 33 cents to $37.33 after the media conglomerate said it was considering splitting itself into two companies to boost shareholder value.
Shares of Time Warner rose 50 cents to $18.60 after a Credit Suisse First Boston analyst speculated that Viacom’s announcement may prompt Time Warner to again consider splitting up its cable television assets as a way to boost its stock.
* Toys R Us rose $1.23 to $26 after it said it would be acquired for $26.75 a share, or $6.6 billion plus assumed debt, by an investment group including Kohlberg Kravis Roberts & Co.
* Shares of Morgan Stanley and Goldman Sachs Group were little changed after reporting earnings that exceeded estimates. Morgan Stanley dropped 88 cents to $57.07, and Goldman Sachs added 7 cents to $110.04.
