Wall Street tumbled Wednesday as the price of a barrel of oil soared to a record near $124 and touched off concerns that the stock market’s recent gains might have been premature while consumers grapple with rising energy and food costs. The major stock market indexes each lost more than 1.5 percent, with the Dow Jones industrial average declining by more than 200 points.
Sharp gains in commodities prices have drawn fresh attention from investors worried that consumers — the lifeblood of the U.S. economy — will be forced to pare discretionary spending to keep up with increasing costs for necessities.
Oil prices have doubled over the past year, causing gasoline prices to surge further into record terrain and strap consumers, who drive more than two-thirds of economic activity, with yet another financial burden.
Wall Street slid Wednesday amid a cacophony of worries about the effects of rising prices. Kansas City Federal Reserve President Thomas Hoenig in a speech late Tuesday pointed to inflation as his main concern. Treasury Secretary Henry Paulson said in an interview with The Associated Press Wednesday that while the worst of the credit crisis might have passed, rising gas prices will dampen the benefits from the 130 million economic stimulus checks that the government is distributing.
While some investors say recent stock market gains had come too quickly anyway, others say the market’s declines reflect more serious worries about the difficulties blanketing consumers.
Ed Peters, chief investment officer at PanAgora Asset Management in Boston, said, “It is going to be a drag if we continue to get rising prices. The oil prices is just symptomatic of a broader trend.”
But Stephen Carl, head of equity trading at The Williams Capital Group, said that while rising oil prices appeared to rattle investors, many had also seen sizable gains from stocks in recent weeks and wanted to preserve their profits.
“Perhaps we fall away here for a few sessions,” he said the S&P 500’s rebound to the 1,400 level might have been too hasty for some investors.
According to preliminary calculations, the Dow fell 206.48, or 1.59 percent, to 12,814.35, after fluctuating early in the session.
Broader stock indicators also declined. The Standard & Poor’s 500 index fell 25.69, or 1.81 percent, to 1,392.57, and the Nasdaq composite index fell 44.82, or 1.80 percent, to 2,438.49.
Bond prices rose as investors pulled more money out of stocks and placed it in the safer confines of the Treasury market. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 3.85 percent from 3.92 percent late Tuesday.
Light, sweet crude rose $1.69 to settle at $123.53 on the New York Mercantile Exchange.
The dollar rebounded against other major global currencies, and gold prices fell.
While stocks pulled back, the day was not without good news. The Labor Department said labor costs rose at an annual rate of 2.2 percent during the first quarter. That’s down from a 2.8 percent rise the previous quarter, suggesting that inflation pressures may be letting up.
But there have not been enough strong readings lately to give investors the nudge they need to push the Dow back above the four-month highs it reached last week. Market analyst Edward Yardeni noted that the Dow, the S&P 500 index and many key individual stocks are close to their 200-day moving averages.
“Not everybody’s a fan of technical analysis, but everyone knows that this is an important technical level,” Yardeni said. “We need some really good bullish news to break above that average.”
In corporate news, Clearwire and Sprint Nextel Corp. said they are planning to merge their wireless broadband units to create a new $14.55 billion wireless communications company. The new company is getting a $3.2 billion investment from Intel Corp., Google Inc., Comcast Corp., Time Warner Cable Inc. and Bright House Networks.
Clearwire fell 24 cents to $16.22 after spending most of the session higher and Sprint slipped 3 cents to $9.16.
In earnings news, The Walt Disney Co. reported late Tuesday its profit in the most recent quarter rose 22 percent despite the Hollywood writers’ strike. Disney was among the handful of the 30 stocks that comprise the Dow industrials to advance, rising 97 cents, or 2.9 percent, to $34.70.
Yardeni noted that while the first-quarter earnings season began several weeks ago with worse-than-expected results from General Electric Co., it ended up bringing decent results, with earnings excluding the financial sector rising close to 10 percent.
“There is a perception in the markets we had a great move here since March, and that we need to take a break from the rally for a while,” Yardeni said. “And then we’ll be set up for a summer rally.”
The Russell 2000 index fell 13.58, or 1.86 percent, to 716.21.
Declining issues outnumbered advancers by more than 2 to 1 on the New York Stock Exchange, where volume came to 1.28 billion shares compared with 1.23 billion shares traded Thursday.
Overseas, Japan’s stock market rose 0.38 percent. Britain’s FTSE index closed up 0.74 percent, Germany’s DAX index rose 0.84 percent, and France’s CAC-40 rose 0.68 percent.