Stocks drop after new record for petroleum prices

Thursday, July 3, 2008

NEW YORK — Wall Street resumed its sell-off Wednesday after oil hit a new record and a bearish analyst report renewed concerns that General Motors Corp. could run out of cash.

The stock market's pullback, which accelerated in the final hours of the week's last full trading day, left the Dow Jones industrial average officially in bear market territory, with the blue chips having fallen more than 20 percent from their October highs.

Oil surged to new records above $144 a barrel as the government reported a bigger-than-expected drop in U.S. supplies and as investors worried about tensions in the Middle East.

Worries that GM could go so far as to declare bankruptcy only added to investors' unease. The stock fell $1.77, or 15 percent, to $9.98 — the first close below $10 since September 1954 when Dwight Eisenhower was president. Investors shrugged off better-than-expected sales figures from June and fretted about the company's cash needs.

The Dow fell 166.75, or 1.46 percent, to 11,215.51, the lowest close since August 2006.

Broader stock indicators also posted big losses after showing gains for much of the morning. The Standard & Poor's 500 index fell 23.39, or 1.82 percent, to 1,261.52, and the technology-laden Nasdaq composite index fell 53.51, or 2.32 percent, to 2,251.46.

The S&P is just shy of the 20 percent pullback that signals a bear market. While the Nasdaq is also in bear market territory, it hit that mark in March, moved higher and has now returned to a bear level.

Bond prices rose as investors exited stocks. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 3.97 percent from 4.01 percent late Tuesday. The dollar slipped versus other major currencies, while gold prices fell.

Gasoline prices hit a fresh high ahead of the July 4th holiday weekend, increasing half a penny overnight to $4.092 a gallon on average, according to AAA, the Oil Price Information Service and Wright Express.

Higher energy prices have caused consumers to pare their spending. Crude oil hit a record $144.32 a barrel in after-hours trading after reaching a record settlement of $143.57, up $2.60 on the New York Mercantile Exchange. The Energy Department reported Wednesday that U.S. crude oil supplies fell more than expected last week.

Businesses are also struggling with elevated energy costs, and demand is weakening for autos, heavy machinery and steel. The Commerce Department said Wednesday that factory orders rose by 0.6 percent in May. The result was in line with a consensus of Wall Street economists surveyed by Thomson Financial, but was much smaller than the gain of 1.3 percent for April.

Traders were trading cautiously ahead of the three-day weekend. The stock market closes three hours early, at 1 p.m. EDT, on Thursday before the Fourth of July holiday on Friday.

"It's your typical holiday week for the summer time," said Stephen Carl, principal and head of equity trading at The Williams Capital Group in New York. "I think we're all familiar with the economic problems out there," he said, and given how weak stocks have been, the market is "staying the course."

Lately, that course has been a downward one. Though stocks mostly posted modest gains in the first two sessions of the week, Wall Street saw a steep sell-off last week. The Dow lost 4.2 percent last week while the S&P and Nasdaq fell more than 3 percent amid concerns about the ability of the economy to move ahead with energy prices racing higher.

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