Wall Street Shrugs Off British Arrests
Wall Street withstood the news of an alleged terrorist plot targeting commercial airlines Thursday, with stocks moving higher on strong corporate earnings reports and a sharp drop in oil prices.
European markets tumbled as British authorities said 24 people were arrested in connection with a suspected plan to destroy numerous international flights, and the United States raised its terror alert to the highest levels ever for air travelers.
Although many U.S. and international airline stocks fell as a result, strong earnings reports from Dow component American International Group and others lent support to U.S. markets.
Wall Street also benefited from lower crude prices, which fell on the belief that reduced travel in the coming weeks and months would curtail demand for fuels. A barrel of light crude settled at $74, down $2.35, on the New York Mercantile Exchange.
“With the whole issue of what’s happening in London, we could have seen a major sell-off, but we didn’t,” said Stuart Freeman, chief equity strategist for A.G. Edwards & Sons. “All these things that have happened lately, with inflation and interest rates and oil, you’d think the market would have had a really difficult time with that. But there’s some upside here.”
The Dow Jones industrial average rose 48.19 points, or 0.4%, to 11,124.37.
Broader stock indicators also rose. The Standard & Poor’s 500 index added 5.86 points, or 0.5%, to 1,271.81, and the Nasdaq composite index gained 11.46 points, or 0.6%, to 2,071.74.
In Europe, Britain’s FTSE 100 slid 0.6%, Germany’s DAX index tumbled 1.3% and France’s CAC-40 fell nearly 1%. Japan’s Nikkei stock average slipped 0.2% in earlier trading.
Bonds were little changed in listless trading, with the yield on the benchmark 10-year U.S. Treasury note unchanged at 4.93%. Gold futures plummeted $15.60 to $634.90 an ounce. The dollar strengthened, with the euro slipping to $1.278 from $1.286.
In economic news, the nation’s trade deficit slipped 0.3% in June because of strong sales of U.S. products abroad, while first-time jobless claims edged higher last week. The trade report shows economic strength, which could spur inflation and higher interest rates, but the unemployment report signals a slowing economy, which ought to help reduce inflation risk. Such conflicting data have been hallmarks of the U.S. economy over the last few months, giving Wall Street little direction.
In other market highlights:
* A gauge of energy shares slid 0.5% for the biggest decline among 10 industry groups in the S&P; 500. ConocoPhillips, the third-largest U.S. oil company, slipped 80 cents to $68.10.
* Many airline and hotel stocks also retreated. Continental Airlines fell as low as $22.93 and closed off 35 cents at $23.86. Its planes, along with those of American Airlines and United Airlines, were targeted in the alleged terrorist plot.
American parent AMR closed unchanged at $20.29, after falling as low as $19.25. UAL, the parent of United Airlines, declined 31 cents to $23.52. Boeing retreated 96 cents to $76.20.
Starwood Hotels & Resorts Worldwide, the No. 2 U.S. hotel operator by market value, slumped $1.04 to $51.43. Hilton Hotels fell 54 cents to $23.77.
* American International Group jumped $1.83, or 3.1%, to $60.32, for the biggest gain in the Dow average. The insurance firm said underwriting income from property and casualty coverage in the second quarter rose 93% on lower claim costs and higher premiums, beating analysts’ estimates. Chief Executive Martin Sullivan also said that AIG didn’t see an immediate effect from the alleged terrorist plot.
* Viacom led media stocks higher after earnings topped analysts’ estimates. Shares of the media company controlled by billionaire Sumner Redstone advanced $3.27 to $37.05. Viacom posted profit, excluding some items, of 48 cents a share, as cable television providers paid more to carry networks such as MTV and Spike. That exceeded the 44 cents expected on average by analysts.
Walt Disney climbed 75 cents, or 2.6%, to $29.58 for the second-biggest advance in the Dow average. The company reported earnings Wednesday that exceeded analysts’ projections.
The market was also supported by makers of consumer staples such as household products. Procter & Gamble added 72 cents to $60.26.
“There really shouldn’t be any effect on most corporate profits other than travel and leisure stocks such as airlines,” Douglas Johnston, principal of U.S. equities trading at Canaccord Adams Inc. in Boston, said about news of the alleged terrorist plot.
* Tenet Healthcare rallied 78 cents to $6.61. The second-largest U.S. hospital chain Thursday reported a second-quarter profit from continuing operations, excluding legal and other costs, of 6 cents a share. Tenet had been expected to report a loss of 3 cents a share for the quarter.
