Stocks Drop Sharply As Oil Surges to $60 Thursday June 23, 3:15 pm ET By Michael J. Martinez, AP Business Writer
Stocks Fall Sharply As Oil Reaches All-Time High Over $60 a Barrel; Dow Off 111 Points
NEW YORK (AP) -- Stocks dropped sharply Thursday as oil reached a new all-time high over $60 per barrel, prompting a selloff in a battered transportation sector that spread to the rest of the market. The Dow Jones industrials were off 111 points.
Stocks began their descent after FedEx Corp. missed earnings forecasts and raised new concerns about oil's impact on corporate earnings. Then, in early afternoon, when oil climbed past $60 per barrel, the market's decline steepened.
A barrel of light crude was quoted at $59.42, up $1.33, on the New York Mercantile Exchange after peaking at $60.06.
"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."
In late afternoon trading, the Dow Jones industrial average fell 111.25, or 1 percent, to 10,476.68.
Broader stock indicators also lost ground. The Nasdaq composite index dropped 11.56, or 0.6 percent, to 2,080.47. The Standard & Poor's 500 index was down 8.47, or 0.7 percent, at 1,205.41.
Bonds finally retreated after this week's strong rally, but gained back some early losses as FedEx's concerns about oil spread through the market. The yield on the 10-year Treasury note rose to 3.96 from 3.94 percent late Wednesday. The dollar rose against most major currencies, while gold prices also gained ground.
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 with 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 in May, 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 have 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.
Profits 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 $6.70 to $81.42.
Other transportation stocks fared poorly as well, with rival shipper UPS Inc. losing 87 cents to $69.36 and trucking company Yellow Roadway Corp. shedding $1.49 to $48.52.
"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 LLC. "I think you'll want to keep a close eye on stocks for the short-term and weigh any new purchases very carefully."
Del Monte Foods Co. dropped 48 cents to $10.37 after it reported a 66 percent drop in quarterly profits, blaming high raw material and transportation costs -- again, with fuel prices partially to blame -- for the fall. The company missed Wall Street's estimates by 22 cents per share.
General Electric Co. slipped 83 cents to $34.67 after the Dow component announced a reorganization that would consolidate its 11 business divisions into six groups, saving up to $300 million. The conglomerate also reaffirmed its second quarter and full year profit estimates, and promised double-digit profit growth in 2006 and beyond.
The Wall Street Journal reported that former Morgan Stanley executive John Mack could be a candidate to replace Chairman and Chief Executive Phil Purcell. While initially stating that Mack would not be a candidate, the board may yet consider him for the top spot, the newspaper said. Morgan Stanley rose $1.09 to $51.61.
Delphi Corp. slipped 5 cents to $5.01 after it named turnaround specialist Robert S. Miller as chairman and CEO of the auto parts maker. The move came one day after the struggling company cut its dividend in half.
Declining issues outnumbered advancers by more than 5 to 3 on the New York Stock Exchange, where volume came to 1.03 billion shares, compared with 1.01 billion traded at the same point on Wednesday.
The Russell 2000 index of smaller companies was down 5.97, or 0.9 percent, at 637.48.
Overseas, Japan's Nikkei stock average rose 0.26 percent. In Europe, Britain's FTSE 100 was up 0.3 percent, Germany's DAX index gained 0.17 percent, and France's CAC-40 climbed 0.25 percent.
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