Stocks Drop on Oil Worry
Surging oil prices prompted new worries about the economy and sent stocks lower Wednesday as investors locked in profits from the market’s recent rally. The concerns over oil overshadowed a strong report on manufacturing orders.
Crude futures rose sharply after the government reported a 1.6-million-barrel drop in its oil inventories. The news created concerns about supply as the summer driving season begins. After rising as high as $51.60 a barrel during the session, crude futures settled at $50.98 a barrel, up $1.31, in New York trading.
The concerns over oil eclipsed a report from the Commerce Department that said orders for durable goods -- big-ticket items designed to last at least three years -- rose 1.9% in April, far more than the 1.5% analysts had expected. The report cheered investors worried about a slowdown in consumer demand.
“Oil is a concern, but the economy still appears to be in very good shape,” said Brian Belski, market strategist at Piper Jaffray. “In stocks, what we’re seeing is a fairly normal respite after last week’s rally. I still think we’re ready for a surprising summer rally ahead.”
The Dow Jones industrial average fell 45.88 points, or 0.44%, to 10,457.80.
Broader stock indicators also gave ground. The Standard & Poor’s 500 index lost 4.06 points, or 0.34%, to 1,190.01, and the Nasdaq composite index fell 11.50 points, or 0.56%, to 2,050.12. Nasdaq snapped an eight-session streak of gains.
Declining issues outnumbered advancers by more than 2 to 1 on the New York Stock Exchange.
Bond yields rose, with the benchmark 10-year note closing at 4.08%, up from 4.03% on Tuesday. Bond yields rise as their prices decline.
Wednesday’s bond trading appeared to be influenced by comments from Federal Reserve Bank President Jack Guynn to a home builders group in Atlanta. Guynn said inflation measures show a “distinct upward tilt” and that the Fed must continue its series of rate hikes to “keep inflation and inflation expectations firmly in check.”
Although long-term yields rose, shorter-term yields were little changed. The Treasury saw strong demand at its auction of $22 billion in new two-year notes. The notes were sold at a yield of 3.62%.
New-home sales hit an all-time high in April but were less than Wall Street had expected. Annualized sales increased to 1.32 million homes, up from 1.31 million in March but less than the 1.33 million analysts had forecast. The numbers gave investors hope that the recent surge in housing sales would moderate rather than nose-dive.
Analysts said Wall Street’s slump was not unexpected because each of the three major indexes rose more than 3% last week.
“When you’re up this much and you see oil rise or something else happens that doesn’t fit into this mental model of good news, you’re going to take some chips off the table,” said Jack Caffrey, an equity strategist for J.P. Morgan Private Bank.
In other market highlights:
* A measure of raw materials companies fell 1.1% for the steepest loss among 10 S&P; 500 industry groups. UBS lowered its benchmark 2005 steel-sheet forecast to $520 per ton from $550.
U.S. Steel retreated $1.35 to $38.64. Allegheny Technologies, a stainless steel producer, declined 99 cents to $20.63.
* Visteon, the No. 2 U.S. auto parts maker, gained 90 cents, or 14%, to $7.17 for the S&P; 500’s second-biggest rally. The company said former parent Ford Motor agreed to take over 24 plants, bailing out its largest supplier for the third time in 17 months. Delphi, the No. 1 U.S. auto parts maker, rose 15 cents to $4.71.
* An S&P; 500 gauge of healthcare shares dropped 0.5% as 45 of its 55 members declined. A majority of the House of Representatives supports legislation that would allow Americans to buy less expensive medicines from countries such as Canada, backers of the measure said.
Pfizer, the world’s largest drug maker, lost 17 cents to $28.67. Merck, the No. 3 U.S. pharmaceutical company, slid 20 cents to $32.54.
* Genzyme sank $1.54 to $62.86. The maker of drugs for rare enzyme disorders was cut to “neutral” from “buy” at UBS analyst David Molowa. The stock has risen 45% in the last year, compared with an increase of 3.6% in an S&P; 500 index of healthcare shares.
* Safeway announced that it would pay a quarterly dividend of 5 cents a share, the company’s first since its initial public offering in 1990. The dividend will be paid July 7 to shareholders of record June 16, Pleasanton, Calif.-based Safeway said after the market close. Before the announcement, Safeway shares rose 21 cents, to $22.60.
* Morningstar, the mutual fund research company that went public this month, slumped 90 cents to $22.16, one day after a unit received a subpoena from the Labor Department. The agency wants documents and other data about its Morningstar Associates unit, which sells investment consulting and retirement planning services to retirement plans.
* Computer Sciences, the No. 5 U.S. computer services company, added 77 cents to $46.55. Computer Sciences said fourth-quarter profit before some items was $1.09 a share, beating analysts’ estimates of $1.07.
