Stocks Sag as Prices Jump for Gold, Oil
Surging gold and energy prices dragged stocks lower Monday as inflation fears curbed Wall Street’s enthusiasm over solid first-quarter earnings from financial services firm Citigroup.
Although Citigroup’s upbeat results fed optimism about corporate earnings for the latest quarter, investors again focused on inflation and interest rates after comments from Federal Reserve Bank of Chicago President Michael Moskow indicated he felt the central bank must remain “vigilant” with its policy of boosting rates to stem price increases.
Without new data to gauge the economy’s health and only a few earnings reports, Wall Street turned its attention to the commodities markets, where oil futures topped $70 a barrel.
Gold futures surged $18.90 to $615.40 an ounce, a 25-year high. Investors often buy gold as a haven against inflation.
Despite the threat of rising raw-material costs, the inflation picture has remained somewhat positive recently, said Russ Koesterich, portfolio manager at Barclays Global Investments.
“Core inflation [excluding volatile energy and food prices] has stayed relatively contained,” Koesterich said, adding that this week’s reports on wholesale and consumer inflation should indicate where prices are increasing and draw a reaction from Wall Street.
The Dow Jones industrial average dropped 63.87 points, or 0.57%, to 11,073.78, after opening the day in positive territory. The Dow is at its lowest level since March 9, when it closed at 10,972.28.
Broader stock indicators were also lower. The Standard & Poor’s 500 index fell 3.79 points, or 0.29%, to 1,285.33, and the Nasdaq composite index sank 14.95 points, or 0.64%, to 2,311.16.
Bond yields declined after their big run-up last week. Some investors are betting that high oil prices and slower regional factory growth will force the Fed to stop raising U.S. interest rates soon, analysts said.
The benchmark 10-year U.S. Treasury note fell to 5.01%, from 5.05% on Thursday. Financial markets were closed Friday.
Political tension in Iran and Nigeria and concerns about shrinking U.S. gasoline reserves drove crude futures to their highest levels since late last summer, when hurricanes shut down much of Gulf Coast production. A barrel of light crude jumped $1.08 to settle at $70.40 on the New York Mercantile Exchange.
The Federal Reserve’s Empire State manufacturing index -- a measure of industrial activity in the New York region -- dropped by almost half to 15.8 for April, missing economists’ prediction of 24.
Aside from data on home building and inflation this week, investors will be focused entirely on corporate earnings. They will be looking for clues on how companies -- about half the Dow Jones industrials are scheduled to report this week -- have dealt with higher interest rates, increased lending costs and a rise in oil prices, as well as what they expect in the coming months.
“It’s ultimately going to come down to how companies are responding” to all of these pressures, said Jack Caffrey, equities strategist for JPMorgan Private Bank.
“It’s worth noting that second- and third-quarter expectations have ticked higher over the past week or so.”
In other market highlights:
* Citigroup, the world’s largest financial-services company, gained 30 cents to $48.35. The company reported a 3.6% increase in first-quarter earnings, buoyed by record trading and investment banking revenue. Profit from continuing operations rose to $1.11 a share. On that basis, it was expected to earn $1.02, the average estimate of analysts surveyed by Thomson Financial.
Elsewhere in the sector, Wachovia said its quarterly profit gained 7% on higher overall revenue and fees. Adjusted earnings of $1.12 a share matched Wall Street’s target, but Wachovia nonetheless slid 80 cents to $55.05.
* The increase in energy prices helped send a gauge of retailers down 1.1% for the third-worst performance among 24 groups in the S&P; 500. Nordstrom, a luxury retailer, slumped $1.11 to $38.70.
* Industrial shares declined 0.7% for the third-biggest drop among 10 groups in the S&P; 500. GE, the world’s No. 2 company by market value, lost 60 cents to $33.29. 3M, the maker of 50,000 products including Scotch tape and Post-it Notes, fell 71 cents to $80.26.
* Gold producers rose with the price of the metal. Barrick Gold, the world’s largest gold company, advanced $1.29 to $30.12. Newmont Mining, the No. 2 producer, gained $3.20 to $56.07.
* VF rallied $4.94, or 8.8%, to $61 for the best performance in the S&P; 500. The maker of Wrangler jeans and North Face apparel said first-quarter per-share profit rose as much as 14%, exceeding its forecast. VF cited an improvement in its jeans business.
* J.B. Hunt Transport Services added $1.38 to $22.88. The No. 3 U.S. trucker said first-quarter earnings rose 3.1%, helped by higher prices and a fuel surcharge. Per-share profit was 31 cents, meeting the average analyst estimate, according to Thomson.
* Discount broker Charles Schwab posted a sharp, 68% jump in quarterly earnings as revenue climbed to its highest levels since the dot-com era. Profit of 19 cents a share met analysts’ estimates. Shares fell 25 cents to $17.34.
* Tyco International said it agreed to pay regulators $50 million to settle accounting fraud charges but did not admit wrongdoing. The troubled conglomerate has been under investigation since 2002. Tyco fell 8 cents to $25.93.
