Investors’ concerns about the economic outlook and the potential for inflation outweighed a sharp drop in oil prices Friday, sending stock prices slightly lower by the close. The market’s three main stock indices finished the week with mild losses, as Wall Street’s customary year-end rally stalled.
Investors were rattled somewhat by the Labor Department’s latest Producer Price Index report, which measures wholesale prices. The PPI rose 0.5 percent in November, far less than October’s 1.7 percent rise, but still a troublesome indicator of possible inflation.
The sour mood overshadowed a surprising drop in crude oil futures, which came after OPEC agreed to cut oil production by 1 million barrels per day. The move was designed to keep prices steady, although even with Friday’s drop, they remain at historically high levels. A barrel of light crude settled at $40.71, down $1.82 on the New York Mercantile Exchange.
“A lot of the run-up in oil was speculation, and some of that froth has been taken out,” said Chris Wiles, senior director of large cap growth and core equity investment for the Armada Funds. “And the reaction to the OPEC moves shows that OPEC is just not the driving force that they used to be. That’s good for our economy.”
The Dow Jones Industrial average fell 9.60 points, or 0.1 percent, while the broader Standard & Poor’s 500-stock index ended down 1.24 points, or 0.1 percent. The technology-rich Nasdaq composite index fell 0.94 points, or 0.04 percent.
The week’s trading was marked by wide swings in crude oil prices, a mix of economic data, and a great deal of investor uncertainty that left stock indices lower for the week. The Dow industrials fell 0.5 percent, the S&P 500 dropped 0.3 percent and the Nasdaq Composite was down 0.9 percent.
The University of Michigan’s latest consumer sentiment index reading helped keep the market’s losses minimal, as the index rose to 95.7 from 92.8 in November. Economists had expected a reading of 93.2, and the index’s gains bode well for increased holiday spending this month.
“Overall, this headline PPI number came in a lot higher than expected, but then we got better sentiment than expected,” said Scott Wren, equity strategist for A.G. Edwards & Sons. “All told, this news is kind of a wash, but it gives us the chance to move a little higher later on.”
The wholesale report convinced many investors that the Federal Reserve would move the nation’s benchmark interest rate higher by a quarter percentage point at its meeting on Tuesday. Rates currently stand at 2 percent, but with a weak dollar, rising energy costs and climbing wholesale prices, a rate hike — and future moves higher — are considered very likely.
The rise in wholesale prices has not yet filtered down to consumers to any great degree, which has left many companies with tighter margins and the prospects of reduced growth, or even modest downsizing. Auto parts maker Delphi Corp. said it plans to cut 8,500 jobs in 2005, with 5,500 of those cuts coming from overseas jobs. The company also reduced its fourth quarter earnings forecasts to reflect the cuts and lower sales. Delphi lost 34 cents to $8.30.
A pair of potential acquisitions, while generating plenty of discussion among analysts and traders, did little to help stocks. Johnson & Johnson lost $1.06 to $60.25 after The Wall Street Journal’s online edition reported that it is near an agreement in principle to acquire medical device maker Guidant Corp. Guidant nonetheless fell $2.20 to $71.55 on the news.
Nextel Communications Inc. slipped 5 cents to $29.76 amid media reports that said the company has tentatively agreed on a merger with Sprint Corp. Verizon Communications Inc.’s wireless subsidiary was also considered a potential bidder for Nextel. Dow component Verizon fell 40 cents to $40.80, while Sprint shed 14 cents to $24.14.
Southwest Airlines Co. lost a penny to $15.71 after it announced a $100 million bid for some of bankrupt ATA Airlines Inc.’s assets, including six of the carrier’s 14 gates at Chicago’s Midway Airport. Orlando-based AirTran Holdings Inc., which is also bidding for ATA’s gates, fell 29 cents to $10.70.
St. Paul Travelers Cos. Inc. was up 24 cents at $36.85 despite receiving a subpoena from New York’s attorney general inquiring about the company’s lawyers’ professional liability insurance underwriting.
Overseas, Japan’s Nikkei stock average fell 0.18 percent. In Europe, Britain’s FTSE 100 closed up 0.12 percent, France’s CAC-40 gained 0.56 percent for the session and Germany’s DAX index rose 0.58 percent.