Stocks tumble as oil prices surge
Pastor Dale Morgan
Stocks tumble as oil prices surge*
Wall Street slumps as crude prices rally more than $5 a barrel, the
dollar falls and Fed's 'Beige Book' shows more weakness.
NEW YORK (CNNMoney.com) -- Stocks tumbled Wednesday, with the Dow losing
over 200 points, amid a $5 spike in oil prices, more problems for the
bank sector and a report showing continued economic weakness.
The Dow Jones industrial average (INDU) lost 206 points, or 1.7%. The
broader Standard & Poor's 500 (SPX) index lost 1.7% and the Nasdaq
composite (COMP) lost 2.2%.
The Dow Jones Transportation average fell 4.7% on the jump in oil prices.
"Oil prices are spiking today and there's also this renewed issue with
the financial sector," said Greg Church, president at Church Capital.
Lehman Brothers (LEH, Fortune 500) stock fell as investors continued to
react to the company's huge quarterly loss announced earlier this week.
Merrill Lynch downgraded the stock to "neutral" from "buy."
And Church said that the financial sector was being plagued by vague
market rumors that supposedly bullet-proof Goldman Sachs (GS, Fortune
500) could take a big hit.
Anheuser-Busch (BUD, Fortune 500) stock could be active Thursday after
it was announced late Wednesday that Belgian rival InBev has made a
nearly $47 billion offer for the company. Reports suggested InBev was
interested in the maker of Bud a few weeks ago. Shares gained 7% in
after-hours trading.
In other news, it was announced after the close of trade that the House
bid to extend jobless benefits beyond the six-month mark has failed.
(Full story)
Thursday brings the May retail sales report from the Commerce
Department. Sales are expected to have risen 0.5% after falling 0.2% in
April. Sales excluding autos are expected to have 0.7% after rising 0.5%
in April.
Oil prices surge. U.S. light crude oil for July delivery rose $5.07 to
settle at $136.38 a barrel on the New York Mercantile Exchange, after
the government's weekly supply report showed crude prices shrank more
than expected.
Meanwhile the DOE forecast that oil prices will stay well above $100 a
barrel and gas prices will stay above $4 a gallon through 2009.
"You're seeing a growing awareness that the rising price of oil is
impacting everyone's ability to do business," said Mark Travis,
president and CEO Intrepid Capital Funds.
Additionally, he said investors were responding to the ongoing malaise
in financial markets.
The Federal Reserve released its periodic 'Beige Book' survey of
economic activity in the afternoon. As expected, the survey showed
continued economic weakness in late April and early May, due to weaker
consumer spending and advancing commodity prices.
Eye on the Fed: Chairman Ben Bernanke hinted earlier this week that the
central bank will soon need to raise interest rates, to combat higher
pricing pressure - and to prop up the weak U.S. dollar.
Fed Vice Chairman Donald Kohn, speaking at a Fed conference in
Massachusetts, said that the rise in oil prices is raising consumer
inflation expectations and that it is critical for these expectations to
be contained. Fed Governor Randall Kroszner spoke at the same conference
on consumer protection and the role of credit in the economy.
Company news: Corporate Express NV, a Dutch distributor of office
supplies, accepted an improved $2.7 billion bid from Staples (SPLS,
Fortune 500).
Alcoa (AA, Fortune 500) tumbled almost 8% after a JPMorgan (JPM, Fortune
500) analyst said that the aluminum producer is not looking to sell
itself or spin off part of its business and that this will be a
disappointment for Wall Street.
Including Alcoa, 27 out of 30 Dow components slid. Other big decliners
included AIG (AIG, Fortune 500), American Express (AXP, Fortune 500),
Citigroup (C, Fortune 500) and General Motors (GM, Fortune 500). The
lone Dow advancers were the oil components Exxon Mobil (XOM, Fortune
500) and Chevron (CVX, Fortune 500) and chemical maker DuPont (DD,
Fortune 500).
Market breadth was negative. On the New York Stock Exchange, losers
topped winners four to one on volume of 1.39 billion shares. On the
Nasdaq, decliners topped advancers three to one on volume of 2.17
billion shares.
Gas hits new record: The national average price for a gallon of regular
unleaded gas rose to a record $4.052 from the previous day's record of
$4.043, AAA reported.
Other markets: The dollar slipped versus the euro and yen.
Treasury prices advanced, lowering the yield on the benchmark 10-year
note to 4.07% from 4.10% late Tuesday. Bond prices and yields move in
opposite directions.
COMEX gold for August delivery rose $11.70 to settle at $882.90 an ounce.