Shares Fall on Oil Jitters
Worries about oil prices and the economy triggered renewed selling on Wall Street on Thursday, after strong gains in the previous two sessions.
Disappointing profit forecasts from luxury home builder Hovnanian Enterprises and from bottler Coca-Cola Enterprises damped the mood and sparked concern about profit growth for the rest of the year.
Oil prices edged higher after a report said 60% of U.S. oil production in the Gulf of Mexico remained shut from damage by Hurricane Katrina. A barrel of crude settled at $64.49, up 12 cents, in New York trading.
With oil remaining in the mid-$60-a-barrel range, investors were concerned that both corporate earnings and consumer spending would weaken because of high energy costs.
What’s more, doubts are rising about the Federal Reserve’s willingness to temporarily halt its credit-tightening campaign, some analysts said.
San Francisco Fed President Janet Yellen, in a speech Thursday, appeared to echo sentiments of other Fed officials in recent days, hinting that the central bank would prefer to stay the course on interest rate increases despite Katrina’s short-term effects on the economy.
She said the Fed “has and must have a commitment to price stability” -- a reference to inflation concerns.
“I think the Fed’s in a box here, and they really don’t have a choice but to raise rates,” said Michael Chren, portfolio manager for Allegiant Funds. “Rebuilding from the hurricane will be an economic positive next year, you have concerns about inflation and you have the housing bubble. I don’t think they can stop.”
Central bank policymakers will meet Sept. 20.
The Dow Jones industrial average fell 37.57 points, or 0.4%, to 10,595.93. The Dow had gained 186.13 points in the previous two sessions as oil prices declined.
Broader stock indicators also lost ground. The Standard & Poor’s 500 slid 4.69 points, or 0.4%, to 1,231.67, and the Nasdaq composite fell 6 points, or 0.3%, to 2,166.03.
The NYSE composite index, which hit a record high on Wednesday, lost 0.4%, as losers outnumbered winners by more than 3 to 2 on the exchange.
In the Treasury bond market, yields continued to rebound as investors felt less certain the Fed could hold short-term rates steady for a while in the wake of Katrina. The 2-year T-note yield ended at 3.87%, up from 3.85% on Wednesday. The yield was as low as 3.73% last week. The 10-year T-note was at 4.15%, up from 4.14% on Wednesday.
For the stock market, with three weeks to go in the quarter, the key issue may be whether more companies begin to warn of profit shortfalls, analysts said.
Among Thursday’s market highlights:
* Hovnanian sank $4.10 to $57.49 after forecasting fiscal 2006 per-share profit of $8.05 to $8.40, less than analysts’ estimate of $8.55 in a Thomson Financial survey. The company’s fiscal third-quarter earnings also fell short of estimates; the firm said home price gains had “moderated.”
Shares of other builders also declined, although they rallied from their lows of the session. Centex fell 94 cents to $67.64, KB Home slid $1.20 to $74.69 and Toll Bros. dropped $1.58 to $47.27.
* Coca-Cola Enterprises, which bottles and distributes products of Coca-Cola Co., fell $2.11, or 10%, to $19.99 for the worst performance in the S&P; 500. The company expects per-share earnings this quarter to trail analysts’ consensus 51-cent estimate because of weakness in its European business. Coca-Cola Co. fell 37 cents to $44.28.
* After regular trading ended, trucking firm Yellow Roadway lowered its third-quarter outlook, in part because of Katrina’s effects, it said. Quarterly results will be $1.40 to $1.45 a share, down from a previous forecast of $1.60 to $1.65, Yellow said.
Its shares, which lost 55 cents to $46.01 in regular trading, tumbled to $43.60 after hours.
* Texas Instruments and Intel gained ahead of mid-quarter updates.
Shares of Texas Instruments, the world’s largest maker of semiconductors that run mobile phones, rose 45 cents to $33.75. After the close of trading, the company said third-quarter sales would be $3.48 billion to $3.62 billion with per-share profit of 39 cents to 41 cents, exceeding its July prediction of revenue of $3.29 billion to $3.56 billion and profit of 34 cents to 38 cents. After the report, the stock rose 51 cents to $34.26.
Intel rose 43 cents to $26.09 before reporting that third-quarter sales would be $9.8 billion to $10 billion. The company previously predicted $9.6 billion to $10.2 billion. The stock slipped 22 cents to $25.87 after hours.
* Apple Computer, the maker of the iPod music player, rose $1.10 to $49.78. Analysts at Piper Jaffray and Credit Suisse First Boston lifted their 12-month share-price estimates a day after Apple introduced a phone that runs its iTunes music software and a music player that is about the size of a business card. Apple shares are up 55% since Jan. 1.
* EBay dropped $1.53 to $38.93. The largest Internet marketplace is in talks to buy Web-telephone operator Skype Technologies, whose software allows Internet users to speak to each other for free, for as much as $3 billion, the Wall Street Journal and New York Times reported. Both companies declined to comment.
