Soaring Oil Prices Send Stocks Skidding
NEW YORK – Soaring oil prices trumped positive earnings news Wednesday, 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 Corp. and an upbeat outlook from McDonald’s Corp. cheered Wall Street early in the session. But rising crude prices squashed those gains, as oil traders nervously handicapped weekly inventory numbers due Thursday.
The weakness in the equity market surprised some analysts, after a declines in crude prices Tuesday and a sharply higher open for stocks. Anticipation of Thursday’s report on weekly jobless claims was also spooking buyers – particularly following disappointing employment data for September. That, combined with 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 overcommitted 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 headed lower. So there’s tremendous uncertainty, and uncertainty and anxiety are the enemies of a bull market.”
In afternoon trading, the Dow Jones industrial average sank 82.81, or 0.8 percent, to 9,994.37.
Broader stock indicators were also lower. The Standard & Poor’s 500 index declined 9.23, or 0.8 percent, to 1,112.61. The Nasdaq composite index was down 4.23, or 0.2 percent, at 1,920.94, 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 U.S. 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 $53.64 per barrel on the New York Mercantile Exchange.
Even as oil rallied, however, commodity-dependent stocks foundered, pressuring blue chips. On the Dow, Alcoa Inc., the world’s largest aluminum producer, lost $1.12 to $32.07, and Exxon Mobil Corp. was down 96 cents at $48.41. Other energy stocks also suffered: Chevron Texaco shed $1.08 to $53.39 and Occidental Petroleum Corp. lost $2.26 to $54.69.
Analysts said this was related to growing fears about a possible bubble in commodities prices, and worries that they would due for a correction soon in the face of slowing global demand, particularly in China, and cooling economic growth at home. With oil prices up 60 percent so far this year, the thinking went, how much further can they go?
“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, aluminum, oil, chemicals, paper products, you name it. And that’s being reflected in the market.”
The rise in oil prices definitely overshadowed the session’s earnings news. 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 lofty energy prices.
Intel surged 72 cents to $21 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 Inc. climbing 16 cents to $13.86 and National Semiconductor Corp. rising 53 cents to $15.76.
McDonald’s was up $1.24 at $28.79 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! Inc. gained 88 cents to $35.11 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 about 3 to 1 on the New York Stock Exchange. Volume came to 1.22 billion shares, compared to 1.01 billion shares traded at the same point Tuesday.
The Russell 2000 index of smaller companies was down 6.22, or 1.1 percent, at 570.49
Overseas, Japan’s Nikkei stock average fell 0.1 percent. In Europe, Britain’s FTSE 100 declined 0.28 percent, France’s CAC-40 added 0.15 and Germany’s DAX index was up 0.24 in late-day trading.
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