Oil price concerns hits US stocks

Strong growth in the service sector and record high oil prices sent stocks sharply lower on Wall Street today on renewed inflation fears.

A weaker-than-expected job creation report, which initially gave investors hope that economic growth would remain manageable, was ultimately ignored, and stocks finished mostly lower for the fourth week in a row.

The early release of the Institute for Supply Management’s service sector index, which was not due until Tuesday, showed greater-than-expected growth in non-manufacturing businesses – and a sharp jump in consumer prices. That worried investors that inflation might yet take hold and prompt the Federal Reserve to push for potentially jarring interest rate hikes.

The announcement stole momentum from the Labour Department’s jobs report, usually the most important piece of economic data every month. Only 110,000 new jobs were created in March – half of what economists had expected. February’s figure also was revised lower by 19,000 jobs. The nation’s unemployment rate fell to 5.2% from 5.4% in February.

“We rallied nicely on the jobs report, but then we got a conflicting message from the ISM report. That report doesn’t usually carry as much weight, but it hit the bond market hard, and that moved to stocks pretty quickly,” said Brian Pears, head equity trader at Victory Capital Management in Cleveland. “In a market where we’re really this nervous to begin with, it only takes a little bit to turn things around.”

The Dow Jones industrial average fell 99.46, or 0.95%, to 10,404.30.

Broader stock indicators also retreated. The Standard & Poor’s 500 index was down 7.67, or 0.65%, at 1,172.92, and the Nasdaq composite index dropped 14.42, or 0.72%, to 1,984.81.

Continuing fears of inflation, prompted by higher oil prices and a growing economy, plagued the markets during the week, as they have done for most of March, robbing momentum from a strong session on Wednesday.

For the week, the Dow lost 0.37% and the Nasdaq fell 0.31%. The S&P 500 posted its first gain in the past four weeks, rising 0.13%.

The bond market managed its fourth session of gains even after falling initially on the ISM services report. The yield on the 10-year Treasury note fell to 4.45% from 4.48% yesterday.

The dollar rose against most major currencies, while gold prices fell.

A sharp jump in oil prices also sapped investors’ confidence. After reaching an intraday record of US$57.70 (€44.69), a barrel of light crude settled at a closing record of US$57.27 (€44.35), up US$1.87 (€1.45), on the New York Mercantile Exchange.

The ISM services index – mistakenly released alongside ISM’s manufacturing report – came in at 63.1 for March, far more than the 59 reading expected on Wall Street and sharply higher from February’s 59.8 reading.

With the service sector such a strong part of the economy, and another part of the report saying that service providers are charging higher prices, investors feared the growth could trigger inflation.

The ISM manufacturing index, which was initially thought to be much higher due to a snafu in press releases issued by ISM, pointed to modest activity. The index, which measures the strength of industrial activity, came in at 55.2, slightly better than the 54.9 reading economists expected but still down from 55.3 in February.

Qwest Communications International slipped 6 cents to 3.64 as the telecommunications company made yet another attempt to break up Verizon Communications Inc’s takeover of MCI Inc. Qwest is now offering US$8.94bn (€6.92bn)for MCI, far more than the US$7.51bn (€5.82bn) in the Verizon offer, which MCI accepted earlier in the week. MCI added 39 to 25.29, while Verizon was down 31 at 35.19.

Regulators are expanding their probe into insurer American International Group’s accounting and operations, according to The Wall Street Journal, looking at a wider swath of the company’s insurance transactions.

The Journal also reported that former Chairman Maurice “Hank” Greenberg stepped down after the New York attorney general threatened a criminal indictment against the company if Greenberg were still in charge. AIG fell 4.46 to 50.95.

Declining issues outnumbered advancers by a 5 to 4 ratio on the New York Stock Exchange, where volume was heavy.

The Russell 2000 index of smaller companies was down 3.52, or 0.57%, at 611.55.