U.S. Stocks Hit As Oil Tops $132; Investors Await Fed Minutes
NEW YORK (MarketWatch) -- Stocks turned broadly lower on Wednesday, as oil prices surged past $132 a barrel after data showed a drop in crude supplies, fueling concerns that inflation will hurt U.S. consumption and the economy at large.
"The cost of food and energy is going up but incomes have been flat, so people have to be spending less on clothing, cars, big screen TVs and elsewhere," said Paul Nolte, director of investments at Hinsdale Associates.
The Dow Jones Industrial Average dipped 85 points, or 0.7%, to 12,743, as 22 of its 30 components fell.
But oil giants Exxon Mobil and Chevron were higher, as crude oil reached a record high of $132.08, boosted by a weaker dollar, supply concerns, and bullish calls by investment banks.
The latest surge came as the Energy Department reported crude supplies fell by 5.4 million barrels to 320.4 million in the latest week.
The S&P 500 index fell 3 points, or 0.2%, to 1,410, weighed by the consumer discretionary, financials and materials sector.
The broad market remained resilient, with gains seen in the utilities, health care, energy and technology sectors.
The Nasdaq Composite still lost 5 points to 2,487.
Hewlett Packard , also a Dow component, fell 2.4% after reporting earnings late on Tuesday and providing more comments on its proposed takeover of EDS .
Stocks have rallied back since mid-March after the near-collapse of investment firm Bear Stearns prompted massive interventions by the Federal Reserve and the U.S. government to boost credit availability and support the overall economy.
Expectations that the U.S. would slide into recession because of the slump in housing and the related credit crisis have so far been trumped by optimism the overall situation will improve soon.
"The expectation in the market is that this is going to be a short and sweet recession," said Hinsdale's Nolte. "And the market remains supported by the idea that we may be done with the financial crisis that pushed us in there."
Also on the tech front, Analog Devices reported a 6% profit rise, Micron Technology was upgraded to buy from hold at Deutsche Bank, while accounting software maker Intuit topped forecasts on fiscal third-quarter earnings.
Investors will later turn to minutes from the last Federal Reserve rate-setting decision, due out at 2 p.m.
"The Fed capped its dramatic easing cycle with a modest quarter-point rate cut on April 30 and shifted to a neutral bias by omitting earlier references to downside growth risks and the need for quick action," said Sal Guatieri, senior economist at BMO Capital.
"The minutes should prove interesting given the rare double-barrelled dissents against a rate cut amid increased anxiety about the inflation outlook (back when oil prices were 'only' $113 a barrel)," he wrote in a note.
Financial shares were also under slight pressure Wednesday. Some of Wall Street's biggest investment banks are facing losses from a new direction in the second quarter as hedges they used to try and offset the impact of the subprime crisis have come unglued, The Wall Street Journal reported Wednesday.
Lehman Brothers appears to be the worst hit, with write-downs and losses on ineffective hedges likely to total $1.5 billion to $2 billion, the report said. Morgan Stanley's hedging losses will be less than half of Lehman's, it added.
Oil's weight
U.S. stocks took a bruising on Tuesday, after a report that core wholesale prices rose more than forecast in April and another jump in oil prices after T. Boone Pickens predicted $150 oil. The Dow industrials fell 199 points, the S&P 500 dropped 13 points and the Nasdaq Composite dropped 23 points.
The Bank of England's minutes separately showed that its members voted 8-to-1 to hold rates at 5%. The closely followed Ifo business climate for Germany registered a surprise improvement during Ma, helping the euro to advance.
Of stocks in the spotlight, Time Warner rose over 5% in pre-open trade as it's going to get a dividend of $9.25 billion as it separates from Time Warner Cable .
Corporate Express offered to buy closely-held Lyreco of France for $2.7 billion in a deal that may thwart the takeover ambitions of its suitor, Staples Inc. .
The latest deal that's coming under pressure for new terms is the $6.1 billion offer by Fortress Investment Group and Centerbridge Partners for Penn National Gaming , according to a report in The New York Times.
By Nick Godt