Dow Jones Industrial Average Drops 358 Points; Oil Tops $140 A Barrel
NEW YORK, June 26, 2008
Traders work on the floor of the New York Stock Exchange Thursday June 26, 2008. Stocks tumbled Thursday as Wall Street contended with a barrage of bad news: another surge in oil prices and warnings of trouble in the key financial, automotive and high-tech industries. (AP PHOTO)
(AP) A barrage of bad news including a new record high for oil sent Wall Street plunging Thursday, hurtling the Dow Jones industrials down nearly 360 points to their lowest level in nearly two years.
Oil's surge past $140 a barrel was just one of the day's troubling developments. Warnings of trouble in the key financial, automotive and high-tech industries added up to an increasingly troubled economy.
The Dow closed at its low of the day, down 358.41, or 3.03 percent, to 11,453.42, its lowest finish since Sept. 11, 2006, while all the major indexes lost around 3 percent. The flight from stocks sent investors rushing for the safety of the Treasury market, where prices rose and yields tumbled.
Thursday's confluence of bad news overshadowed the National Association of Realtors' report that existing home sales edged up last month, only the second increase in the past 10 months. It also wiped out any positive impact from the Federal Reserve's widely expected decision Wednesday to leave interest rates unchanged.
Analysts' negative comments on General Motors Corp. sent shares of the largest U.S. automaker to their lowest level in more than 30 years, while Citigroup Inc. fell sharply after an analyst placed a "sell" rating on the stock and warned investors to expect less from the brokerage sector in an uneasy economic climate. Disappointing outlooks from technology bellwethers Oracle Corp. and BlackBerry maker Research In Motion Ltd. further soured investors' moods and made the tech sector one of the steepest decliners.
The gloom was compounded by an unnerving forecast about oil prices that raised the specter of higher inflation and even more damage to the economy.
OPEC President Chakib Khelil was quoted as telling a French television station that oil could rise to between $150 and $170 per barrel this summer before pulling back later in the year. That and a falling dollar helped send light, sweet crude as high as $140.39 and to a record settlement of $139.64 on the New York Mercantile Exchange. Rising oil has saddled nearly all parts of the economy with higher costs, weighing on consumers who now have to reach much deeper into their wallets at the gas pump and therefore have less to spend elsewhere.
The stream of downbeat assessments drove home to investors how much U.S. companies stand to be hurt from the fallout of the prolonged housing slump, the nearly year-old credit crisis and the soaring price of oil. The great fear on the Street has been that rising prices and worries about their finances will force consumers to further curb their spending, sending the economy into even more of a decline.
The latest reading on the gross domestic product Thursday backed up that fear. The Commerce Department said the economy as measured by GDP rose at 1 percent annual rate in the first quarter, a slight improvement from the previous estimate of 0.9 percent, but still quite anemic. Moreover, the number does not reflect the impact of higher gas and oil prices that shot up further during the second quarter, which ends Monday.
"This is unfortunately kind of a slack period. We're waiting for second-quarter earnings. Until then, we have this very negative attitude among investors and everyone seems to be latching onto negative news and shrugging off the positive news," said Jack Ablin, chief investment officer at Harris Private Bank in Chicago, pointing to the uptick in housing sales.
Broader stock indicators also fell sharply, but did not plumb the levels they reached in mid-March. The Standard & Poor's 500 index dropped 38.82, or 2.94 percent, to 1,283.15, and the technology-laden Nasdaq composite index slid 79.89, or 3.33 percent, to 2,321.37.
Bond prices rose sharply. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 4.06 percent from 4.10 percent late Wednesday.
The dollar was mixed against other major currencies, while the price of gold - an inflation hedge - jumped.
Alexander Paris, economist and market analyst for Chicago-based Barrington Research, said the market's drop appeared technical in nature - that Goldman Sachs' downgrades might have triggered the selling, but that it was aggravated by end-of-the-quarter window dressing, in which institutions' trades are designed to put their portfolios in the best light.
Meanwhile, he added, "second quarter estimates are still declining. There might be some nervousness about the earnings season coming up."
In other economic news Thursday, the Labor Department reported initial jobless claims remained flat last week at 384,000; Wall Street had been looking for a slight decline.
The Realtors, meanwhile, said existing home sales rose 2 percent in May, compared to analysts' forecast of 2.2 percent increase. Few observers believed this was the start of an upward trend in home sales.
Source: http://www.cbsnews.com/stories/2008/06/26/business/main4213572.shtml