Stocks plunged yesterday as oil prices briefly moved past the psychologically important $60-per-barrel level for the first time. Oil's advance accelerated a...
NEW YORK — Stocks plunged yesterday as oil prices briefly moved past the psychologically important $60-per-barrel level for the first time. Oil’s advance accelerated a sell-off prompted by poor earnings from FedEx — which blamed high fuel prices for its disappointing profits.
The Dow Jones industrial average fell 166.49 to 10,421.44.
Microsoft, one of the 30 Dow stocks, gained 24 cents to close at $25.31 a share. Boeing, also a Dow stock, slid $1.27 to $61.86.
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Broader stock indicators also lost substantial ground. The Nasdaq composite index dropped 21.37 to 2,070.66. The Standard & Poor’s 500 index was down 13.15 at 1,200.73.
FedEx’s earnings missed Wall Street’s expectations and raised new concerns about oil’s impact on corporate profits. That led crude-oil futures to creep higher through the day, breaking through the $60-per-barrel barrier. While purely psychological, that move was enough to send stocks tumbling.
A barrel of light crude settled at $59.42, up $1.33, on the New York Mercantile Exchange after peaking at $60.05, an intraday record.
“We always wondered what $60-a-barrel oil would cost us, and now we know,” said Jeff Kleintop, chief investment strategist for PNC Financial Services Group in Philadelphia. “On top of that, you’ve got news from FedEx, a transportation company, saying, ‘Yeah, oil is hurting us.’ That’s got the market shaken up a bit.”
Oil prices are 58 percent higher than a year ago, though still below the inflation-adjusted high above $90 a barrel set in 1980.
Brokers said the underlying concern is that, with demand expected to average 84 million barrels a day in 2005, there is not enough of a supply cushion, or excess production capacity, to buffer the market from any prolonged output disruption. Excess production capacity is estimated to be about 1.5 million barrels a day, most of it in Saudi Arabia.
Another reason for trepidation among traders is the limited refining capacity in the United States, which is increasingly reliant on imports of gasoline. Therefore, any glitch in the U.S. refining system puts more strain on the global supply chain.
These fears have been exacerbated by rising demand for gasoline and diesel fuel in spite of soaring prices. In the United States, unleaded gasoline averages $2.16 a gallon at the pump, more than 40 percent above year ago levels, yet consumption has been up by 2.5 percent over the past month, compared with a year ago.
Still, with all these factors in the mix, brokers said yesterday’s rally was not sparked by any significant loss of supply or sign of a demand surge.
“It’s mostly due to speculation,” said Mike Fitzpatrick, a broker at Fimat USA in New York. “I don’t see the fundamental support for these prices.”
Bonds ended the session with a minimal retreat, gaining back some early losses as FedEx’s concerns about oil sent the market tumbling in the afternoon. The yield on the 10-year Treasury note rose to 3.95 percent from 3.94 percent late Wednesday. The dollar was mixed against other major currencies, while gold prices rose.
Good unemployment news appeared to mitigate the losses in early trading. The Labor Department reported the number of first-time jobless claims fell to 314,000 last week, less than the 330,000 economists expected and down from 334,000 the previous week.
But in addition to oil, Wall Street was disappointed by comments by Federal Reserve Chairman Alan Greenspan, speaking before the Senate Finance Committee. Greenspan said there’s “no credible evidence” U.S. manufacturing or jobs would be helped by China revamping its currency system — a disappointment to many hoping that such a move would aid the U.S. economy.
In other economic news, the annual rate of existing home sales fell slightly last month, to 7.13 million homes, slightly off the 7.18 million pace recorded in April, according to the National Association of Realtors.
The surge in oil prices has kept the market from building on last week’s gains and deepened investors’ concerns over whether the May-June rally stocks have enjoyed would ultimately be curtailed. Some investors also kept to the sidelines ahead of the Fed’s decision on interest rates next Thursday and the usual end-of-quarter volatility expected next week.
Profit at FedEx rose 9 percent in the latest quarter, but rising jet-fuel costs and the expense of adding a new round-the-world flight route led the shipping company to miss Wall Street’s profit expectations by 2 cents per share. FedEx tumbled $7.35 to $80.77.
Other transportation stocks fared poorly as well, with rival shipper UPS losing $1.32 to $68.91 and trucking company Yellow Roadway shedding $1.51 to $48.50.
“We’ve definitely seen FedEx have an effect on the rest of the sector and spill out into the wider market,” said Michael Sheldon, chief market strategist at Spencer Clarke. “I think you’ll want to keep a close eye on stocks for the short-term and weigh any new purchases very carefully.”