Dow down 101 as US stocks plunge
US stocks tumbled today as oil prices climbed to a new record on fears of refining shortages and caused investors to look past a report showing strong growth in the service sector of the economy.
The Dow Jones industrials dropped more than 101 points, or nearly 1%.
Oil closed above $61 per barrel for the first time as investors worried that Tropical Storm Cindy would hurt production in the Gulf of Mexico and refinery capacity along the coast. Reports of power cuts at two Valero Energy refineries heightened investors’ fears.
A barrel of light crude settled at $61.28, up $1.69, on the New York Mercantile Exchange.
A spike in activity in the service sector failed to stem the losses. The Institute for Supply Management’s services index for June came in at 62.2, higher than the 58.9 economists had expected and better than May’s 58.5 reading.
“There are a number of cross currents in the market right now that make it difficult to find a direction,” said Michael Sheldon, chief market strategist at Spencer Clarke LLC.
“The services report was a very pleasant surprise, and added to generally positive economic data. But then you have oil, which could slow the economy.”
The Dow Jones industrial average fell 101.12, or 0.98%, to 10,270.68 after rising by 68 points yesterday.
Broader stock indicators also fell. The Standard & Poor’s 500 index was down 10.05, or 0.83%, at 1,194.94, and the Nasdaq composite index lost 10.10, or 0.49%, to 2,068.65.
Bonds gained ground after a strong selloff in the previous session. The yield on the 10-year Treasury note fell to 4.07% from 4.10% yesterday.
Optimism about the US economy pushed the dollar to an 11-month high against the Japanese yen.
The dollar lost ground against the euro and other major currencies. Gold prices rose.
Valero Energy dropped 1.46 to 83.50 after the company said the power cuts would reduce oil refining capacity slightly.
Global demand for oil and distillates have threatened to overtake supply, and any reduction in refining capacity is seen as pressure on crude futures. But despite today’s market losses, analysts said bigger problems may lie ahead for the economy.
“The thing here is that crude oil prices at $60 just isn’t new any more,” said Chris Johnson, manager of quantitative analysis at Schaeffer’s Investment Research in Cincinnati.
“The longer it stays up here, the more the maret gets used to it. Now, when we see second-quarter earnings, and we’re getting some grumblings about oil affecting the bottom line, that’ll be a true test.”
Some investors were nervous since the government’s weekly energy inventory report, usually released on Wednesday, was delayed a day by the Independence Day holiday.
PacifiCare Health Systems surged $4.41 to $77.09 after the company confirmed it would be acquired by UnitedHealth Services in an $8.1bn (€6.8bn) cash-and-stock deal. It was the second-biggest acquisition ever recorded in the healthcare sector. UnitedHealth added 27 cents to $53.50.
American International Group named former Securities and Exchange Commission Chairman Arthur Levitt as a special adviser to the board of directors as the company struggles to emerge from an accounting scandal. AIG nonetheless lost 35 cents to $59.14.
Halliburton fell 93 cents to $48.71 even after the US Army awarded the company a $4.97bn (€4.2bn) contract to provide logistics support in Iraq. The contract is $1bn (€837,000) more than the previous year.
General Motors won a $253m (€212m) judgment from the federal government in connection with an underfunded pension plan, The Wall Street Journal reported, though the government is likely to appeal. GM dropped 58 cents to $34.22.
Declining issues outnumbered advancers by nearly four to three on the New York Stock Exchange, where volume totalled 1.46 billion shares, compared with 1.37 billion traded on Tuesday.
The Russell 2000 index of smaller companies was down 4.96, or 0.76%, at 648.27.
