Stocks Surge as Oil Prices Fall
Oil prices continued to tumble Tuesday, and Wall Street decided that was a good thing after all: Stocks surged in a broad rally.
Major market indexes had their biggest gains in four weeks. The Dow Jones industrial average jumped 101.25 points, or 0.9%, to 11,498.09, its highest close since May 11.
As near-term crude oil futures slid $1.85 to $63.76 a barrel in New York -- the lowest since March 22 -- investors shook off concerns about the economy that had weighed on the market last week and Monday.
“Lower oil is a tax cut for the consumer,” said James Awad, who manages about $1.3 billion as chairman of Awad Asset Management in New York. “That’s a very good cocktail for equity prices.”
Earnings reports from brokerage Goldman Sachs and retailer Best Buy also boosted investors’ optimism.
The Standard & Poor’s 500 index rallied 13.57 points, or 1%, to 1,313.11. The technology-heavy Nasdaq composite index soared 42.57 points, or 2%, to 2,215.82.
Sharp declines in oil and other commodities in recent days had given Wall Street pause, on concern that the sell-off in raw materials was foretelling a deep slowdown ahead for the economy.
Oil futures have fallen for seven straight sessions, and the price now is down 17.2% from the record closing high of $77.03 a barrel reached in mid-July.
Energy prices have been pushed down in part by a lessening of Mideast tensions and by higher-than-expected U.S. crude inventories.
Some analysts say that, rather than stoking concern about an economic slowdown, falling energy costs could lessen any slowdown already underway.
“Fears of crude oil being priced above $80 per barrel have now been replaced by the possibility of crude under $60 per barrel,” said John Lonski, economist at Moody’s Investors Service in New York.
“Rather than indicate the proximity of a recession, a further decline by crude oil prices might improve the outlook for economic activity to the degree that cheaper energy boosts household purchasing power,” he said.
Investors seemed to take that view Tuesday, bidding up stocks in some sectors that had been battered during the summer by economic worries.
Home builders, for example, were up sharply. KB Home surged $2.81 to $43.92 and Ryland Group jumped $3.49 to $44.38.
Transportation stocks also were strong. The Dow transports index rose 3.3%.
Small-company stocks, another laggard group in the summer, had a big day. The Russell 2,000 small-stock index surged 2.4%, its biggest one-day gain since July 24.
Overall, rising stocks outnumbered winners by more than 3 to 1 on the New York Stock Exchange, in active trading.
The Dow is within 1.3% of the six-year closing high of 11,642.65 it reached May 10, but most other major market indexes are further from their recent peaks.
The market wasn’t disturbed by comments from Janet Yellen, president of the San Francisco Federal Reserve Bank, who said that Fed policy “must have a bias toward further firming” to keep inflation subdued.
She wouldn’t say how she would vote on interest rates at the central bank’s next gathering, on Sept. 20.
Most analysts expect the Fed to remain on hold with its benchmark short-term rate at 5.25%.
Wall Street is looking ahead to Friday, when the government reports on consumer price inflation for August.
The Treasury bond market remains confident the Fed will continue to hold steady: The 10-year Treasury note yield eased to 4.77% on Tuesday from 4.80% on Monday.
Among the day’s market highlights:
* Retail shares were strong, helped by Best Buy’s advance of $4.37 to $52.14 on its earnings report. Home Depot rose $1.60 to $36.66 and Target gained $1.25 to $52.50.
* McDonald’s jumped $1.08 to $38.20, a 52-week high, after saying that August same-store sales rose 6%, paced by a seventh straight monthly gain in Europe and the introduction of a new snack-wrap sandwich in the U.S.
* Financial service shares rallied. Goldman Sachs gained $7.29 to $158.29 on its earnings report. Mutual fund firm Franklin Resources rose $3.06 to $103.56, a 52-week high.
* Commodity-related stocks were weak as prices of many raw materials continued to fall. Near-term gold futures fell $3 to $587 an ounce.
Despite bears prevailing in almost every end of the commodities sphere, Goldman Sachs expressed a largely positive outlook for the next 12 months.
“We believe that the downturn in oil prices and returns is substantially overdone,” the firm said in a report.
