Brokerage downgrades of three stocks in the Dow Jones industrial average and a rise in crude oil futures left Wall Street mixed Monday, raising doubts that the stock market’s year-end rally would continue.
Brokerages lowered their ratings on Pfizer Inc., Alcoa Inc. and Verizon Communications. The downgrades illustrated the difficulties many companies may have in posting strong profits in 2005.
The rise in oil futures was prompted by a terrorist attack in Saudi Arabia and protests in Nigeria that raised concerns about the safety of the world’s oil supply. The gains reversed a four-day downward trend that allowed Wall Street to look past a disappointing job creation report on Friday. A barrel of light crude settled at $42.98, up 44 cents, on the New York Mercantile Exchange.
“The rally ran into some headwinds Thursday and Friday of last week, and the news on oil prices overnight wasn’t great, but this market has shown some incredible resilience,” said Ken Tower, chief market strategist at Schwab’s CyberTrader. “This is a very strong rally, and it should continue at least through the end of the month, with a few bumps here and there.”
The Dow Jones industrial average was down 45.15 points, or 0.4 percent, at the close, while the broader Standard & Poor’s 500-stock index was off 0.92 point, or 0.1 percent. But the technology-rich Nasdaq composite index added 3.29 points, or 0.2 percent.
While oil prices rose as investors grew concerned over global supply after terrorist attacks in Saudi Arabia and Nigeria, the U.S. dollar saw pressure due to news reports that said the Bush administration was considering replacing Treasury Secretary John Snow. Snow was not overly concerned by the weak dollar, and his replacement is considered likely to follow suit.
While some analysts felt investor optimism would be enough to overcome the lingering questions about the economy and oil prices, others felt the problems could become too great for investors to ignore.
“We get that tightness in the oil markets and the dollar problems, and investors get very jumpy,” said Hugh Johnson, chief investment officer at First Albany Corp. “It’s not a knockout punch or a haymaker or whatever you want to call it, but it’s very damaging to optimism, and that could keep this December rally from unfolding.”
Better economic news, combined with a resumption of falling oil prices from last week, could spur more buying, analysts said.
Shares of Pfizer fell 68 cents to $27.21 after the company was downgraded by Merrill Lynch to “neutral” from “buy” due to “modest upside potential.” The brokerage said concerns over government regulations, including the Food and Drug Administration’s approval process, along with court battles over Pfizer’s Lipitor patent prompted the downgrade.
Goldman Sachs said Alcoa will face higher material costs and a complex labor situation in 2005, prompting a downgrade to “in-line” from “outperform.” Alcoa was down 44 cents at $32.42.
Verizon Communications Inc. slipped 8 cents to $41.94 after it was cut to “hold” from “buy” at Tradition Asiel Securities. The brokerage said the telecommunication giant’s stock was approaching full valuation, and did not appear to be heading for another major rise.
Falling third-quarter sales at Circuit City Stores Inc. gave investors more reason for concern over retail stocks and a slow holiday shopping season. The electronics retailer said sales at stores open at least a year dropped 4.3 percent from a year ago due to a different music and software promotional scheme, weaker new releases during the quarter and changes in the way the company handles satellite service and mobile phone subscriptions. Circuit City dropped $1.08 to $15.13.
Kimberly-Clark Corp. gained 36 cents at $64.34 after it hiked its dividend 12.5 percent to 45 cents per share and said it plans to buy back up to $1 billion worth of its stock in 2005.
Overseas, Japan’s Nikkei stock average fell 0.84 percent. In Europe, Britain’s FTSE 100 closed down 0.53 percent, France’s CAC-40 dropped 0.43 percent for the session, and Germany’s DAX index lost 0.36 percent.