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Stocks Drop As Oil Nears $50 Per Barrel

Posted on: Monday, 27 September 2004, 06:00 CDT

NEW YORK - A fresh surge in oil prices set a new trading record and threatened to push past $50 per barrel Monday, unnerving investors and sending stocks lower.

After setting a new all-time record settlement price of $48.88 on Friday, oil continued its march higher on Monday, creating new worries on Wall Street that the slowdown in profits and the economic recovery would extend through the end of the year due to high energy costs.

A barrel of light crude for November delivery was quoted at $49.60, up 72 cents, on the New York Mercantile Exchange. Prices reached $49.75 earlier in the session, marking the highest intraday trading level ever recorded.

"Clearly we've had oil putting a lot of pressure on this market over the past week or so, but given where oil is right now, we would've expected the market to react even more negatively than where it is," said Brian Belski, market strategist at Piper Jaffray. "With productivity and earnings still pretty strong, and inflation tame aside from oil and gas, we think the market still is set up for a positive move in the fourth quarter."

In late morning trading, the Dow Jones industrial average fell 37.98, or 0.4 percent, to 10,009.26.

Broader stock indicators were moderately lower. The Standard & Poor's 500 index was down 4.80, or 0.4 percent, at 1,105.31, and the Nasdaq composite index dropped 11.22, or 0.6 percent, to 1,868.26.

Oil producers and refiners still struggled to recover from Hurricane Ivan's damage in the Gulf of Mexico, and global demand continues to tighten, analysts said, making the markets susceptible to even minimal losses in overall production.

And if prices rise at the gas pump, investors worried that consumer spending might be pared back just as retailers prepare for the holiday shopping season. The fear is that businesses will have to pay more to get their goods to market and, due to low demand, cannot pass the higher costs onto the consumer.

The Commerce Department reported that new home sales rose 9.4 percent to 1.184 million units in August, a higher figure than economists had forecast. While overshadowed by the oil situation, the good news showed that consumers were still willing to make big purchases even as the economy has slowed.

In corporate news, mortgage giant Fannie Mae climbed 79 cents to $66.30 after striking a deal with regulators in which the company agreed to investigate its top management, including its chief financial officer, and raise additional capital. Morgan Stanley downgraded Fannie Mae to "underweight" from "overweight" due to the investigation.

Wal-Mart Stores Inc. was upgraded to "buy" from "neutral" by Banc of America, which said the recent selloff in the company's shares, combined with promising profit potential, made the stock attractive. Wal-Mart gained 8 cents to $52.89.

Walgreen Co. rose 13 cents to $36.39 after announcing that its profit rose 18.1 percent in the fourth quarter, beating quarterly estimates by a penny per share, thanks to higher prescription sales.

J.P. Morgan Chase & Co. said Monday it would purchase Highbridge Capital Management, a major hedge fund, for about $1 billion, according to media reports. J.P. Morgan Chase slipped 51 cents to $39.24.

Tommy Hilfiger Corp., which announced it is under investigation for its accounting practices, was downgraded to "underweight" from "overweight" by Prudential Equity Group. The clothier was down $2.47 at $10.70.

Declining issues outnumbered advancers by nearly 3 to 1 on the New York Stock Exchange, where volume came to 379 million shares, compared with 343.27 million at the same point Friday.

The Russell 2000 index of smaller companies was down 6.12, or 1.1 percent, to 559.85.

Overseas, Japan's Nikkei stock average fell 0.3 percent. In afternoon trading, Britain's FTSE 100 was down 0.8 percent, Germany's DAX index tumbled 1.1 percent, and France's CAC-40 was dropped 0.6 percent.

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