Investors concerned over erratic oil prices and a slowing economy sent stocks lower Wednesday despite strong earnings from Cisco Systems Inc. and the Federal Reserve’s pause in raising interest rates.
The stock market fell as crude futures fluctuated widely during the session. After nearing new record highs after the Energy Department reported falling crude inventories, a barrel of light crude fell sharply to settle at $76.35, up 4 cents, on the New York Mercantile Exchange.
Heavy industrial and transportation stocks, which comprise the bulk of the Dow Jones industrial average, sold off as investors grew worried that high energy prices would bite deeply into those companies’ profit margins.
Investors also remained concerned because the Federal Reserve, while opting not to raise interest rates Tuesday, said it’s willing to raise rates again should rising prices pose an increasing risk of inflation. A slowing economy combined with inflation is one of the more dismal scenarios for corporate profits.
In the end, the overall mix of news left most investors guessing, so while stocks surged higher in morning trading, they plummeted by late afternoon.
“It’s really such a mixed bag, and there’s so many strong signals that aren’t all that clear, and that’s why the market is bouncing around,” said Brian Bruce, director of global investments at PanAgora Asset Management Inc. in Boston. “Between oil and interest rates and earnings, it’s going to take a little time to see which of these factors are sustainable and drive the market going forward.”
According to preliminary calculations, the Dow fell 64.43, or 0.58 percent, to 11,109.16 after having risen as much as 77.25 early in the session.
Broader stock indicators also moved lower. The tech-focused Nasdaq composite index slipped 0.57, or 0.03 percent, to 2,060.28, though the index had gained 1.8 percent in early trading on the strength of Cisco’s earnings. The large-cap Standard & Poor’s 500 index lost 5.53, or 0.43 percent, to 1,265.95.
Bonds fell in response to the Fed decision, with the yield on the benchmark 10-year Treasury note rising to 4.94 percent from 4.92 percent late Tuesday. The dollar was mixed against other major currencies, while gold prices rose.
In economic news, wholesale inventories rose 0.8 percent in June, according to the Commerce Department, slightly less than May’s 0.9 percent increase. Sales are still growing faster than inventory gains, however, which bodes well for economic growth.
However, economists remain concerned about oil prices, which rose as high as $77.44 a barrel Wednesday, as a counter to economic growth. High energy prices not only weigh on corporate expenses, but also curb consumer spending at a time when the economy is already starting to slow. For investors, however, the surge in oil prompted buying in the energy sector, with ConocoPhillips climbing $1.27 to $68.90 and Chevron Corp. adding 28 cents to $67.48.
But transportation stocks suffered, with the Dow Jones transportation index off more than 2 percent. Among that index’s components, delivery company FedEx Corp. fell $3.99 to $98.40, airline AMR Corp. lost 80 cents to $20.29 and railroad Union Pacific Corp. dropped $1.93 to $78.87.
“We’ve been seeing the weakness in transportation for quite a while, and I think today you’re starting to see that spread into the overall market,” said Michael Sheldon, chief market strategist at Spencer Clarke LLC. “As oil stays at these levels, you’ll see more of that coming through in other stocks as well.”
The 22 percent jump in Cisco’s second-quarter profits led the maker of computer networking systems to raise its full-year estimates, though at least one analyst warned that tech spending could falter if the economy slows further. But overall, investors were pleased, and Cisco jumped $2.49, or 14 percent, to $19.78.
Networking and telecom companies also rose on the strength of Cisco’s earnings and outlook. Ciena Corp. climbed 20 cents to $3.69 and Juniper Networks Inc. gained 49 cents to $13.41, while Lucent Technologies Inc. added 6 cents to $2.11.
The Walt Disney Co., which had traded higher most of the session, slipped 15 cents to $28.83 despite reporting quarterly profits thatbeat Wall Street forecasts by 9 cents a share. The company saw strength in all of its businesses, particularly its movie studio and theme park divisions.
Revenue and profits at Federated Department Stores Inc. doubled from a year ago, and the owner of the Macy’s and Bloomingdale’s chains raised its full-year earnings forecasts. Federated gained 67 cents to $34.46.
Declining issues outnumbered advancers by nearly 3 to 2 on the New York Stock Exchange, where volume came to 1.72 billion shares, compared with 1.62 billion traded Tuesday.
The Russell 2000 index of smaller companies was down 4.62, or 0.67 percent, at 682.85.
Overseas, Japan’s Nikkei stock average rose 1.24 percent. In Europe, Britain’s FTSE 100 was up 0.73 percent, France’s CAC-40 climbed 1.15 percent for the session, and Germany’s DAX index gained 0.9 percent.