Oil rally sends US stocks sharply lower
Soaring oil prices trumped positive earnings news today, sending stocks skidding as investors rushed to take profits on new fears that the market is in the midst of a commodities bubble.
Stronger than expected profits at chip bellwether Intel and an upbeat outlook from McDonald’s cheered Wall Street early in the session. But rising crude prices squashed those gains.
Anticipation of tomorrow’s report on weekly jobless claims also unnerved buyers – particularly following disappointing employment data for September. That, combined with surging energy costs and worries about decelerating earnings, contributed to an apprehensive climate on Wall Street.
“There is so much uncertainty in the market right now, and it is playing itself out as fear: The fear of being over-committed to stocks,” said Ken Tower, chief market strategist for Schwab’s CyberTrader.
“We’ve also seen a lot of recent sentiment data that suggests there is a real short-term consensus opinion that the market is headed lower. So there’s tremendous uncertainty, and uncertainty and anxiety are the enemies of a bull market.”
The Dow Jones industrial average slumped 74.85, or 0.7%, to 10,002.33.
Broader stock indicators were also lower. The Standard & Poor’s 500 index declined 8.20, or 0.7%, to 1,113.64. The Nasdaq composite index shed 4.64, or 0.2%, to 1,920.53, propped up somewhat by strength in the semiconductor industry.
Crude oil futures opened lower, a day after trading above $54 per barrel, raising hopes for a better economic picture by year’s end.
But as oil traders became less bullish about US inventories and worries grew about Hurricane Ivan’s lingering impact on production in the Gulf of Mexico, prices began to soar.
Light, sweet crude for November delivery surged $1.13 to settle at $53.64 per barrel on the New York Mercantile Exchange.
As oil rallied, however, commodity-dependent stocks foundered, putting pressure on blue chips.
On the Dow, Alcoa, the world’s largest aluminium producer, lost $1.00 to $32.19, and Exxon Mobil closed down 89 cents at $48.48. Other energy stocks also suffered: Chevron Texaco shed $1.16 to $53.31 and Occidental Petroleum lost 3.6%, or $2.04, to close at $54.91.
“There is a sense here that we’ve gone too far, too fast in the commodity stocks … and that spills over into the big industrials,” said Larry Wachtel, market analyst with Wachovia Securities.
“All the commodity stocks are getting whacked … steel, copper, aluminium, oil, chemicals, paper products, you name it. And that’s being reflected in the maket.”
Even though third-quarter results have been fairly positive so far, analysts are dubious about whether that will be enough to lift stocks in the face of soaring energy prices.
Intel gained 3.5%, or 71 cents, to $20.99, after beating Wall Street forecasts by 3 cents per share, although analysts’ estimates were reduced after a disappointing mid-quarter update from the semiconductor maker.
Other chip stocks also gained, with Advanced Micro Devices climbing 14 cents to $13.84 and National Semiconductor rising 3%, or 46 cents, to $15.69.
McDonald’s emerged as the best performing stock on the Dow, rising 4.8%, or $1.31, to $28.86, after it projected earnings of 61 cents per share in the third quarter, crediting a stronger tax situation and better worldwide sales for its upgraded outlook.
Analysts had been expecting earnings of 49 cents per share.
Yahoo! Gained 73 cents to $34.96 after quadrupling its profits from a year ago. The company’s earnings of 9 cents per share was in line with Wall Street expectations.
Declining issues outnumbered advancers by more than 2 to 1 on the New York Stock Exchange. Volume was heavy.
The Russell 2000 index of smaller companies was down 7.29, or 1.26%, at 569.42.
