Stocks skidded Wednesday, as soaring crude oil prices offset bullish testimony about the state of the economy by Federal Reserve Chairman Alan Greenspan.
The Dow Jones industrial average finished with a loss of 18.03 points, or 0.2 percent, off an intra-day high of 10,869.83 — a level it hasn’t closed at since June of 2001. The broader Standard & Poor’s 500-stock index shed 0.33 point, or 0.03 percent, while the Nasdaq composite index slipped 3.75 points, or 0.2 percent.
Greenspan was upbeat about the economy in remarks to the House Budget Committee, and did not suggest there would be any major changes in the Fed’s monetary policy. He emphasized the importance of congressional action on Social Security, and said hiking taxes would be negative for the economy right now. While it was a relief to investors that he did not hint at a more hawkish policy on rates, the surge in oil prices was too great for the market to ignore.
“Oil prices were relatively calm to start the day, they were around $52 and seemed like they were going the right way, then they rallied, and that certainly has spooked the market,” said Brian Pears, head equity trader at Victory Capital Management in Cleveland. “There’s also something to be said about the fact that we’re constantly bumping up against these yearly highs ... yet we can’t seem to get through. I think people get scared.”
The U.S. Energy Department’s weekly supply report showed a rise in gasoline and crude inventories, and a decline in stores of distillate fuel, which includes heating oil and diesel. But a separate report from the Paris-based International Energy Agency suggested global energy demands were likely to rise during 2005.
Traders bet prices would do the same: Light, sweet crude for April delivery soared $1.37 to settle at $53.05 on the New York Mercantile Exchange, a four-month high. The dollar edged higher against other world currencies, gold prices were mixed and Treasuries turned bearish; the yield on the benchmark 10-year note rose to 4.38 percent, up from 4.37 percent late Tuesday.
Oil worries, combined with persistent concerns about inflation and interest rates, have made for a difficult market, and analysts think more volatility lies ahead. And while the absence of surprises in Greenspan’s comments was cause for short-term cheer, it wasn’t enough to allay investors’ deeper worries, which have contributed to a “one step forward, two steps back” climate for stocks, said Peter Cardillo, chief strategist with S.W. Bach & Co.
“The tone of the market seems strong (but) we’re in a cautious atmosphere,” Cardillo said. “There’s a willingness to buy, but the uncertainties of how high interest rates have to go, and the potential impact of rates moving up in a more aggressive way, has got investors a little bit nervous.”
MCI Inc. was up 9 cents at $23.45 after the long distance provider’s merger partner, Verizon Communications Inc., said MCI could have two weeks to examine a competing bid from Qwest Communications International Inc. The announcement came a day after Qwest executives made a direct appeal to MCI to reconsider its $8 billion bid over Verizon’s lower-priced deal. Qwest was down 12 cents at $3.93, while Verizon rose 22 cents to $36.47.
In earnings news, American Eagle Outfitters Inc. rose 6.5 percent, or $3.57, to $58.87, after its fourth-quarter profits nearly tripled as same-store sales rose sharply. Earnings of $1.32 per share beat forecasts by analysts surveyed by Thomson First Call by 7 cents. Costco Wholesale Corp. fell 3.6 percent, or $1.69, to $45.02, after its earnings missed Wall Street estimates by a penny, excluding charges.
Lear Corp. slid 11 percent, or $5.76, to $47, a day after the automotive interior systems supplier slashed its first-quarter earnings forecast, citing industry production cuts. Several brokerage houses cut their ratings on the stock, including Wachovia, Lehman, Prudential and Morgan Stanley. AutoZone Inc. gained $1 to $98.33 after its second-quarter profits rose more than 30 percent thanks to a tax benefit, lower costs and a boost in sales due to lower fuel prices.
Overseas, Japan’s Nikkei stock average added 0.3 percent. In Europe, France’s CAC-40 rose 0.2 percent, Britain’s FTSE 100 declined 0.2 percent and Germany’s DAX gained 0.2 percent.