Falling oil prices see US stocks climb

A late rally fed by falling oil prices pushed US stocks higher today, although Wall Street’s mood remained tentative amid uncertainty about the economy.

The drop in oil prices – coming as the US government reported a larger-than-expected stockpile of oil and petrol – removed a key obstacle for stocks to move higher. A barrel of light crude settled at US$50.45 (€39.40), down US$1.62 (€1.27), on the New York Mercantile Exchange.

The news about the trade deficit, which shrank to its lowest level in six months, also encouraged investors who had feared an economic slowdown.

However, Michael Murphy, managing director at Wachovia Securities in Baltimore, noted that while the day’s economic and corporate news was generally good, news of late has been mixed, and most buyers are waiting for a clear signal to get into the market.

“People are very hesitant right now to pull the trigger,” Murphy said.

The Dow Jones industrial average rose 19.14, or 0.19%, to 10,300.25.

Broader stock indicators also moved higher. The Standard & Poor’s 500 index was up 4.89, or 0.42%, at 1,171.11, and the Nasdaq composite index gained 8.78, or 0.45%, to close at 1,971.55.

Stocks took a sharp dive around midday after the White House and Capitol were evacuated due to an off-course aircraft. Once the plane was successfully diverted away from Washington, the major indexes began to slowly move higher.

Contributing to investors’ uncertainty were comments by Federal Reserve Bank of St Louis president William Poole, a member of the Fed’s rate-setting committee. He said the Fed’s stated intent to raise rates at a measured pace “should not be viewed as an iron clad commitment”.

The statement, while nuanced, raised the spectre of stagflation, a situation in which inflation rises even as economic growth starts to slow, and which could still force the Federal Reserve to raise interest rates.

The Commerce Department reported that the US’s trade deficit fell sharply in March as exports climbed to an all-time high, good news for exporting companies. The surge of textile shipments from China slowed. The deficit narrowed by 9.2% to US$54.99bn (€42.95bn), down from the record monthly deficit of US$60.57bn (€47.31bn) set in February.

Late on Tuesday, Cisco reported earnings for the latest quarter, excluding special items, of 1.5bn, or 23 cents per share, beating Wall Street analysts’ expectations by a penny a share. The maker of data networking gear also said its third-quarter sales jumped more than 10%, and it expected sales to grow this quarter. Cisco was up 34 cents at 18.55.

The Dow fell 103.23, or 0.99%, on Tuesday amid rumours that some hedge funds may have been whipsawed last week, when investor Kirk Kerkorian announced an offer for General Motors stock and Standard & Poor’s downgraded the Dow component’s bonds to junk status.

Massive losses at hedge funds could force them to liquidate holdings, flooding the market. GM stock fell 53 cents to 31 today.

Neil Massa, equity trader at John Hancock Funds in Boston, said fears surrounding the hedge funds were still weighing on the market today.

“The Cisco earnings we kind of thought would be the catalyst to get the market higher, but it turned out to be a non-event ... There’s a real disconnect now between the fundamentals that we’re getting in the marketplace and the sentiment,” Massa said.

Eastman Kodak, in the midst of a difficult transition from film-based photography to digital, rose 1.13 to 6.58 after it said chief executive Daniel Carp would step down in favour of his second-in-command, Antonio Perez.

Leading Internet music retailers were down sharply after Yahoo! said it would launch a subscription-based music store with prices that undercut competitors substantially.

RealNetworks plunged 21.1%, or 1.54, to 5.76, Napster tumbled 26.8%, or 1.70, to 4.65 and Apple Computer fell 81 cents to 35.61. Yahoo! rose 82 cents to 34.88.

Advancing issues barely outnumbered decliners on the New York Stock Exchange, where volume was to 1.09bn shares, compared with 1.1bn at the same point on Tuesday.

The Russell 2000 index of smaller companies was up 0.53, or 0.09%, at 595.57.