Oil prices reached a new high in New York and sent US stocks lower today, pushing the Dow Jones industrials back below 10,000.
But with trading on Wall Street light and losses only moderate, investors seemed to be coming to terms with near- 50 per barrel crude.
As a barrel of light crude for November delivery settled at 49.62, up 74 cents, on the New York Mercantile Exchange, stock investors grew more fearful that rising energy prices would slice into corporate profits.
Today’s close for crude broke the previous record settlement price of 48.88 set on Friday, and prices reached 49.75 earlier in the session, marking the highest trading level recorded.
However, analysts believed that Wall Street, which sold off substantially last week in response to oil’s climb, had found a bottom and that some investors believed a year-end rally might be possible.
“Clearly we’ve had oil putting a lot of pressure on this market over the past week or so, but given where oil is right now, we would’ve expected the market to react even more negatively than where it is,” said Brian Belski, market strategist at Piper Jaffray. “With productivity and earnings still pretty strong, and inflation tame aside from oil and gas, we think the market still is set up for a positive move in the fourth quarter.”
The Dow Jones industrial average fell 58.70, or 0.6%, to 9,988.54. It was the Dow’s lowest close since August 17, when it last closed below 10,000.
Broader stock indicators were moderately lower. The Standard & Poor’s 500 index was down 6.59, or 0.6%, at 1,103.52, and the Nasdaq composite index dropped 19.60, or 1%, to 1,859.88.
Oil producers and refiners still struggled to recover from Hurricane Ivan’s damage in the Gulf of Mexico, and global demand continues to tighten, analysts said, making the markets susceptible to even minimal losses in overall production. And investors are worried that if prices rise at the petrol pumps, consumer spending might drop just as retailers prepare for the holiday shopping season.
However, given the relatively small drop in share prices today, investors may be accepting the fact that oil prices are in the 40 to 50 range, said Brian Pears, head equity trader at Victory Capital Management in Cleveland.
“Obviously, the closer to 40 we are, the better off we’ll be,” Pears said. “As you reach 50, you get the risk of speculation. But the inflation data over the past few months has been muted, and it doesn’t look like oil is going to have a big impact on the economy, just as long as we can stay at least steady at this price level.”
The Commerce Department reported that new home sales rose 9.4% to 1.184 million units in August, a higher figure than economists had forecast. While somewhat overshadowed by oil, the data showed that consumers were still willing to make big purchases even as the economy has slowed.
In corporate news, mortgage giant Fannie Mae climbed 99 cents to 66.50 after striking a deal with regulators in which the company agreed to investigate its top management, including its chief financial officer, and raise additional capital. Morgan Stanley downgraded Fannie Mae to ”underweight” from “overweight” due to the investigation.
Wal-Mart Stores was upgraded to “buy” from ”neutral” by Banc of America, which said the recent selloff in the company’s shares, combined with promising profit potential, made the stock attractive. Wal-Mart fell 29 cents to 52.52.
Walgreen rose 22 cents to 36.48 after announcing that its profit rose 18.1% in the fourth quarter, beating quarterly estimates by a penny per share, thanks to higher prescription sales.
JP Morgan Chase & Co said today it would purchase a majority stake in Highbridge Capital Management, a major hedge fund, for about 1 billion. JP Morgan Chase slipped 62 cents to 39.13.
Tommy Hilfiger, which announced it is under investigation for its accounting practices, was downgraded to “underweight” from “overweight” by Prudential Equity Group. The clothier was down 2.87 at 10.30.
Declining issues outnumbered advancers by about 2 to 1 on the New York Stock Exchange, where volume totalled 1.26 billion shares, compared with 1.25 billion on Friday.
The Russell 2000 index of smaller companies was down 7.61, or 1.3%, to 558.36.