Slumping oil prices drag down stock market
— -- Investors pushed stocks lower Tuesday as another tumble in oil prices undermines the case for an economic recovery.
Major stock market indexes skidded about 2% in light trading volume Tuesday as crude dropped for the fifth straight day. The drop in oil signals investors think demand for energy and basic materials will remain soft as the economy struggles.
Investors have become more tentative in recent weeks after the market's spring rally and are now trading cautiously. Some fear they might have been too optimistic in March and April about how soon the economy might recover from the recession.
At the close of trading, the Dow Jones industrial average was down 161.27, or 1.94%, to 8,163.60. The Standard & Poor's 500 index was at a 10-week low of 88103, off 17.69, or 1.97%. The Nasdaq composite index fell 41.23, or 2.3%, to at 1,746.17.
About four stocks fell for every one that rose on the New York Stock Exchange, where volume came to 1.1 billion shares.
"Our view is that the economy is still in a precarious state," said Ben Halliburton, chief investment officer of Tradition Capital Management in Summit, N.J. "The weak consumer, driven by very high unemployment, destroyed wealth and unavailable credit is going to continue to be a major drag on the U.S. economy."
Oil fell $1.13 to $62.92 a barrel Monday, down sharply from last week's highs. The drop in the price of crude has sent stocks falling as investors anticipate that a weaker world economy will mean less demand for energy.
Disappointing economic news over the last few weeks, culminating in last Thursday's worse than expected U.S. jobs report for June, has altered investors' belief that the economy would rebound significantly.
Early Tuesday, Ikea said it will cut more jobs than previously announced as the financial crisis continues to weigh on demand for its furniture. The Swedish furniture company did not say exactly how many workers would be affected. In the past 10 months, Ikea has already slashed 5,000 jobs globally after sales dropped 7% below budget.
Investors are now looking to second-quarter earnings reports for some sense of whether companies have already seen the worst of the recession.
Results start to trickle in with casual dining chain Ruby Tuesday RT reporting after the close of trading Tuesday. Wall Street expects a profit of 19 cents per share, on average, according to Reuters.
Aluminum maker AlcoaAA reports on Wednesday. Wall Street analysts expect Alcoa to post a second-quarter loss of 37 cents per share. In the same period a year earlier, Alcoa earned 66 cents per share on revenue of $7.6 billion.
Bond prices were mostly higher after an auction of $35 billion in three-year notes was met with decent demand.
Investors have been worried in recent weeks that the government may have to raise interest rates to entice buyers as it issues massive amounts of debt to fund its stimulus programs. So far though, auctions have been going relatively smoothly.
The yield on the benchmark 10-year Treasury note, which moves opposite its price, slipped to 3.49% from 3.51% late Monday.
The dollar mostly gained against other major currencies, while gold prices also rose.
Overseas Tuesday, Japan's Nikkei stock average fell 0.3%. Britain's FTSE 100 reversed early gains and fell 0.2%, Germany's DAX index lost 1.2%, and France's CAC-40 fell 1.1%.