US stocks down amid hurricane blues
Wall Street finished a difficult week lower today as investors, restrained by uncertainty about the economic impact of Hurricane Katrina, had little reaction to a sharp decline in oil prices and a drop in unemployment.
The market fluctuated on news that US unemployment reached a four-year low, and as energy prices retreated on signs that allied nations would help cushion a US oil shortage. The numbers were shadowed by fears that Katrina’s widespread devastation of the Gulf coast will trigger a sharp economic downturn.
“I consider this event as critical, if not more economically damaging, than September 11, 2001,” said Paul McManus, senior vice president at Independence Investment LLC. “We have no idea what the extent of the damage is down there, and we may not know until next week.”
Wall Street felt some relief from a drop in oil prices, which fell after the government and members of the Paris-based International Energy Agency said they would tap reserves to counter disruptions to 90% of oil production in the Gulf of Mexico. Petrol futures also eased for the first time this week.
A barrel of light crude sank 1.90 dollar to settle at 67.57 dollars on the New York Mercantile Exchange, where petrol futures dropped 22.5 cents to 2.18 dollars per gallon.
The Dow Jones industrial average fell 12.26, or 0.12%, to 10,447.37.
The broader stock indicators also were lower. The Standard & Poor’s 500 index slipped 3.57, or 0.29%, to 1,218.02, and the Nasdaq composite index closed down 6.83, or 0.32%, at 2,141.07.
Bonds edged higher, with the yield on the 10-year Treasury note slipping to 4.02% from 4.03% on Thursday. The US dollar was mixed against other major currencies in European trading, while gold prices pulled back slightly.
Investors largely ignored a report from the US Labour Department showing that the 169,000 jobs created in August were fewer than the 190,000 predicted by economists, even as the job growth pushed unemployment down to a low of 4.9% from 5% the month before.
But interpreting the data – coupled with several lacklustre reports earlier this week – was complicated by the worsening situation in Katrina’s wake. Many fear the aftermath of the storm will exacerbate a slowdown already happening in the economy and persuade the Federal Reserve to halt its string of interest-rate hikes.
“Confidence is slipping, manufacturing is slowing, and even with today’s jobs report, the employment trend is still negative,” said Jack Ablin, chief investment officer at Harris Private Bank in Chicago. “The bet here is that the Federal Reserve will have to stop raising rates in order to keep the economy from sliding further.”
Across the country, consumers are already reeling from the storm’s fallout, which has severely limited gas supplies and boosted retail prices to levels well above 3 dollars a gallon. And with no sign when shipping terminals along the Gulf Coast – some of the US’s most active – will resume operation, Wall Street is bracing for the worst.
“I don’t think people appreciate the importance of the (Gulf Coast) region to the US economy,” said McManus, who sees economic activity declining for a month or two. ”It’s going to be felt really hard.”
Nonetheless, the market stood its ground and managed modest gains during a week when crude oil surged past 70 a barrel. For the week, the Dow rose 0.48%, the S&P added 1.07% and the Nasdaq climbed 0.96%.
In corporate news, Boeing’s largest union went on strike today, shutting down aircraft production for the first time in 10 years. The International Association of Machinists and Aerospace Workers rejected a proposed three-year deal, saying the airline ignored demands for higher pensions, stronger job security and better health benefits. Boeing declined 1.65 to close at 64.34.
Airlines also came under more pressure from the recent surge in oil prices. Late yesterday, Northwest Airlines warned it could lose as much as 400 million this quarter as greater spending on jet fuel pushes the troubled air carrier dangerously close to bankruptcy. Northwest’s mechanics are still on strike, but its pilots said they would negotiate a new round of pay cuts. Northwest dropped 34 cents to 3.63.
Declining issues outpaced advancers by 9 to 7 on the New York Stock Exchange, where volume of 1.27 billion shares was well below the 1.71 billion shares traded on Thursday.
The Russell 2000 index of smaller companies fell 5.12, or 0.77%, to 663.33.
