Stocks Slip as Oil Climbs
Inflation concerns dominated Wall Street on Thursday, with stocks mostly lower as crude prices marched toward $68 per barrel and jobless claims fell. Interest in small-company and technology stocks pushed the Nasdaq composite index narrowly higher, however, to its third straight five-year high.
Although the economy has so far absorbed high energy costs, fears remain that chronically high prices could spark inflation. A barrel of light crude settled at $67.94, up 87 cents, in New York trading.
Strength in the labor market also unnerved some bond investors as the Labor Department reported a third straight drop in weekly unemployment claims. With the March jobs report due today, the bond market worried that more people on the nation’s payrolls would mean increased demand in the economy, another potential catalyst for inflation.
The benchmark 10-year Treasury note rose to 4.90%, its highest since June 2002, up from 4.85% on Wednesday.
Should the inflation threat increase, the Federal Reserve would continue raising interest rates to combat higher prices -- a move that would make consumer loans and mortgages more expensive and corporate expansion efforts more costly.
“You still have a lot of uncertainty and the jobs report [today], which will set the stage for what the Fed could do,” said Jeff Kleintop, chief investment strategist for PNC Financial Services Group in Philadelphia. “You’re just not going to see a lot of buyers in the market ahead of that.”
The Dow Jones industrial average fell 23.05 points, or 0.2%, to 11,216.50.
Broader stock indicators were barely mixed. The Standard & Poor’s 500 index lost 2.52 points, or 0.2%, to 1,309.04, and the Nasdaq composite index rose 1.42 points, or 0.1%, to 2,361.17.
Treasury yields surged as investors worried that upcoming jobs data and an increase in commodity prices might encourage the Federal Reserve to keep raising rates.
Bond dealers are becoming anxious that central banks could be falling behind the curve in warding off more pervasive price increases in the economy, said Dominic Konstam, head of interest rate strategy at Credit Suisse.
“This is the market’s way of telling the world’s central banks ‘hurry up and get your tightening over with, and don’t think you’re anywhere near done,’ ” he said. “People are more worried about potential inflation in the pipeline.”
Inflation is the sworn enemy of bond investors because it eats away at the value of their fixed returns.
Gold futures rose closer to the psychologically significant $600 an ounce mark, adding $7.30 to $595.20 an ounce.
The increase in gold prices and the rise in oil spooked some stock investors, as commodities are generally seen as a hedge against higher inflation. However, there’s also an unwillingness to abandon stocks because once the Fed has stopped raising rates, there’s the potential for the market to rally.
The overall market was mostly unmoved by the latest influx of monthly retail sales reports.
In other market highlights:
* Retailers that declined on sales data included Wal-Mart, which fell 31 cents to $46.56. April sales at U.S. stores open at least a year will climb 4% to 6%, the company said. March same-store sales rose 1.4%, the smallest gain since April 2005. Wal-Mart had forecast a March gain of 1% to 3%. Dillard’s, a department-store operator, dropped 37 cents to $26.15 after it reported little change in same-store sales.
* On the upside, Bed Bath & Beyond surged $2.50, or 6.5%, to $40.82 for the second-biggest gain in the S&P; 500. The largest U.S. home-furnishings retailer said it had per-share fourth-quarter profit of 67 cents on sales of $1.69 billion. Analysts, on average, expected 65 cents on revenue of $1.64 billion, according to Thomson Financial.
Among upscale department stores, Nordstrom rose $1.87 to $40.71 after the company said same-store sales in the five weeks ended Saturday increased 4.3%.
Discount department-store chains Kohl’s and Target both rose on increases in same-store sales. Kohl’s added $1.93 to $54.44, while Target gained 44 cents to $52.62.
* Apple Computer rallied $4.03 to $71.24. Its two-day climb of 16% is its largest since October 2004. Apple said Wednesday that its new Boot Camp software would allow its newest computers to run Microsoft Corp.’s Windows XP program.
Bear Stearns & Co. analyst Andrew Neff wrote in a note to clients that Apple’s strategy for its Macintosh computers might be “underestimated.”
* Merck shares tumbled $1.15, or 3.2%, to $34.84 for the worst performance in the Dow average. A New Jersey jury ruled Wednesday that the drug maker must pay damages to a 77-year-old man who claimed Vioxx caused his heart attack.
* 3M jumped $3.92, or 5.1%, to $81.38, the biggest gain in the Dow average. The maker of 50,000 products including Scotch tape estimated that first-quarter profit was $1.15 to $1.16 a share, higher than the company’s previous forecast of $1.10 to $1.14, amid rising sales of industrial and consumer products.
* In foreign trading, Japan’s broad Topix share index jumped 1.7% to a 15-year high of 1,775.67, amid continuing optimism about the Japanese economy. The Nikkei-225 index rose 1.4% to 17,489, its highest level in more than five years.
Japanese stocks advanced even as bond yields rose.
