Stocks Plunge on Soaring Oil Prices
Wednesday March 9, 3:32 pm ET
By Meg Richards, AP Business Writer
Stocks Slip on Soaring Oil Prices, Pressure by Higher Yields on Long-Dated Treasuries
NEW YORK (AP) -- Stocks slid Wednesday as the prospect of rising inflation sank in on Wall Street, sending yields on long-dated Treasuries to an eight-month high. A weaker dollar and volatile oil prices also made equity buyers scatter.
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A gradual acceleration of inflation and a rally in commodities have combined to make investors nervous about stocks, as many on Wall Street predict a slowdown in corporate profits for 2005. A feeble U.S. dollar and bearish bond market, combined with a rise in gold and oil prices, underscored those concerns Wednesday.
"Profit margins have peaked, inflation is on the way up, and those aren't generally good things for stocks," said John Caldwell, chief investment strategist for McDonald Financial Group, part of Cleveland-based KeyCorp. "So weakness in the bond market on top of that tends to make people skittish. ... It just makes people question their thinking that much more."
In the final hour of trading, the Dow Jones industrial average was down 89.86, or 0.82 percent, at 10,822.76, diminishing hopes that the index would soon break the 11,000 mark.
The broader gauges were also lower. The Standard & Poor's 500 index declined 10.13, or 0.83 percent, to 1,209.30. The Nasdaq composite index fell 7.48, or 0.36 percent, to 2,066.07.
Oil futures came within 2 cents of an all-time intraday high, but fell back to settle up just 6 cents at $54.65 per barrel on the New York Mercantile Exchange. The government's weekly supply data showed a better-than-expected rise in crude inventories, but declines in supplies of gasoline and distillate fuel, which includes heating oil. Some traders had speculated that oil prices would climb higher still, amid supply concerns and as cold weather caused shudders in the Northeast, but oil stocks were poised for a lower finish, with the AMEX Oil Index dropping 1.69 percent in late-day treading.
Bond trading was also volatile, as the yield on the 10-year Treasury note rose to 4.51 percent -- it's highest level since July -- from 4.39 percent late Tuesday, after the Federal Reserve released its survey of business conditions, which suggested inflation may be starting to rise. That's caused some to wonder if the Fed might take a more aggressive posture on raising short-term rates when it next meets, on March 22. Bond traders had already moved to bearish positions as the U.S. Treasury auctioned $15 billion in five-year notes Wednesday, and prepared to sell $9 billion in 10-year notes Thursday.
Some of the nervousness is related to an ongoing debate about foreign buyers' appetite for U.S. debt, especially in the face of a weaker dollar. A sharp rise in industrial production in Germany and good economic news out of Japan contributed to the strength of the euro and the yen, further widening the currency gap.
Michael Strauss, chief economist at Commonfund, said a combination of solid economic growth and rising inflation risk is "a caution flag that the market's perception that the Fed is going to be close to completing its tightening moves is probably not correct, and that's what the bond market is reacting to."
"I think the bond market is going through a reality check," Strauss said. "The bottom line is that the economy looks healthier, it looks like it's absorbed some hiccups ... but inflation is coming. And more importantly, the Fed recognizes this."
The move on the 10-year note pressured interest-rate sensitive sectors, including banking stocks; the Dow Jones Financial index declined 1.20 percent. One of the few bright spots in the market, aside from gold, could be found in the tech sector: The Philadelphia Semiconductor Index was narrowly higher, up 0.07 percent. That move comes ahead of Intel Corp.'s regular mid-quarter update, due Thursday.
Chip maker Xilinx Inc. added 13 cents to $31.59 after raising its revenue forecast for the March quarter. The company now expects sales to be up 5 percent to 8 percent sequentially, above prior estimates for 1 percent to 5 percent growth.
Canadian mining company Noranda Inc. was down 17 cents at $19.08 after announcing plans to merge with Falconbridge Ltd., a major nickel and copper producer in a deal that would create one of the largest base-metal companies in North America. Noranda already owned 60 percent of Falconbridge.
Polymer and specialty chemicals producer Crompton Corp. was up 12 percent, or $1.60, at $15.06, after saying it had agreed to purchase Indianapolis-based Great Lakes Chemical Corp. in a stock swap transaction valued at $1.8 billion. Great Lakes gained 22 percent, or $5.92, to $33.10, on the news.
Kmart Holding Corp. was up 3.5 percent, or $3.78, at $113.02 after the retailer posted a $309 million profit for the fourth quarter, a 14 percent increase over the previous year, but said sales continued to fall, albeit at a lower rate than earlier periods. Kmart is expected to close its acquisition of Sears, Roebuck and Co. in the coming weeks.
The Russell 2000 index, which tracks smaller company stocks, was down 4.24, or 0.66 percent, at 633.74.
Decliners outnumbered advancing issues by more than 2 to 1 on the New York Stock Exchange. Volume came to 1.28 billion shares, compared to 1.17 billion shares traded at the same point Tuesday.
Overseas, Japan's Nikkei stock average added 0.67 percent. In Europe, France's CAC-40 shed 0.46 percent, Britain's FTSE 100 fell 0.30 percent and Germany's DAX index declined 0.48 percent.
New York Stock Exchange: nyse.com
Nasdaq Stock Market: nasdaq.com |
