Stocks tumbled yesterday as rising crude-oil prices prompted Delta Air Lines to warn of possible bankruptcy and Wall Street's rumor mill...
NEW YORK — Stocks tumbled yesterday as rising crude-oil prices prompted Delta Air Lines to warn of possible bankruptcy and Wall Street’s rumor mill chewed over the possibility of hedge-fund losses due to steep investments in troubled General Motors. The Dow Jones industrial average shed more than 100 points.
The Dow fell 103.23, or 0.99 percent, to 10,281.11.
Microsoft, one of the 30 Dow stocks, lost 21 cents to close at $24.90 a share. Boeing, also a Dow stock, gained 48 cents to close at $61.04.
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Broader stock indicators also fell sharply. The Standard & Poor’s 500 index was down 12.62, or 1.07 percent, at 1,166.22, and the Nasdaq composite index lost 16.90, or 0.85 percent, to 1,962.77.
Delta’s news led many investors to wonder whether other companies may fall victim to high energy costs and added to Wall Street’s chronic concerns that high oil prices may lead to an economic slowdown, inflation or a worst-case combination of both.
In addition, analysts speculated that several global hedge funds had suffered losses from holdings in General Motors’ stock and its bonds, downgraded to “junk” status last week. The rumors were unsubstantiated but were enough to prompt edgy investors to sell.
Hedge funds — which invest in a wide variety of stocks, bonds and derivatives to maximize returns and are considered riskier than typical stock or mutual-fund investments — were said to have been hit hard after the debt downgrades, which eroded the value of GM’s bonds, and the significant investment in GM by billionaire investor Kirk Kerkorian’s Tracinda.
“Obviously GM’s stock got a boost last week on the Tracinda offer, then the bonds got crushed by downgrades, so they would’ve gotten hurt on both sides of that trade,” said Todd Clark, head of listed equity trading at Wells Fargo Securities. “Against the backdrop of crude trading higher … it’s a little unsettling.”
Despite the hedge-fund furor, GM’s stock stayed afloat, rising 20 cents to $31.53.
Crude prices were volatile ahead of today’s government energy-inventory report, which often moves crude prices substantially. After rising as high as $53.10, a barrel of light crude for June delivery settled at $52.07, up 4 cents, on the New York Mercantile Exchange. The consistently high prices for oil have exacerbated Wall Street’s worries about the economy.
In the financial sector, Morgan Stanley fell $1.33 to $49.42 as Chief Executive Phil Purcell told an investor conference the Discover card spinoff would hurt revenues and the second quarter was shaping up to be difficult. Morgan Stanley executives also said more employee departures could be forthcoming, but the company had a deep pool of talent.