Stocks skidded today as soaring oil prices offset bullish testimony about the state of the US economy by Federal Reserve Chairman Alan Greenspan.
The Dow Jones industrial average retreated 18.03, or 0.17%, to 10,811.97. That was also down from an intraday high of 10,869.83 – a level it hasn’t closed at since June of 2001.
The broader gauges also settled lower. The Standard & Poor’s 500 index shed 0.33, or 0.03%, to 1,210.08. The Nasdaq composite index was down 3.75, or 0.18%, at 2,067.50.
Mr Greenspan was upbeat about the economy in remarks to the House Budget Committee, and did not suggest there would be any major changes in the Fed’s monetary policy. He emphasised the importance of congressional action on social security, the US state pension system, and said hiking taxes would be negative for the economy right now.
While it was a relief to investors that he did not hint at a more hawkish policy on rates, the surge in oil prices was too great for the market to ignore.
“Oil prices were relatively calm to start the day, they were around US$52 (€39.57) and seemed like they were going the right way, then they rallied, and that certainly has spooked the market,” said Brian Pears, head equity trader at Victory Capital Management in Cleveland.
“There’s also something to be said about the fact that we’re constantly bumping up against these yearly highs ... yet we can’t seem to get through. I think people get scared.”
The US Energy Department’s weekly supply report showed a rise in petrol and crude inventories, and a decline in stores of distillate fuel, which includes heating oil and diesel. But a separate report from the Paris-based International Energy Agency suggested global energy demands were likely to rise during 2005.
Oil worries, combined with persistent concerns about inflation and interest rates, have made for a difficult market, and analysts think more volatility lies ahead. And while the absence of surprises in Mr Greenspan’s comments was cause for short-term cheer, it wasn’t enough to allay investors’ deeper worries, which have contributed to a “one step forward, two steps back” climate for stocks, said Peter Cardillo, chief strategist with S.W. Bach & Co.
“The tone of the market seems strong (but) we’re in a cautious atmosphere,” Mr Cardillo said. “There’s a willingness to buy, but the uncertainties of how high interest rates have to go, and the potential impact of rates moving up in a more aggressive way, has got investors a little bit nervous.”
Decliners slightly outnumbered advancing issues on the New York Stock Exchange.
The Russell 2000 index, which tracks smaller company stocks, was down 1.20, or 0.19%, at 637.33.