New York A hike in oil prices sent stocks sharply lower Wednesday as traders worried about the damage that Hurricane Rita might wreak on Texas refineries. The Dow Jones industrial average lost more than 100 points.
Stocks slid after oil futures rose as much as $2 a barrel in morning trading. While economists have debated the long-term economic impact of Hurricane Katrina, few have ventured to guess what a hit from another powerful hurricane might mean to long-term oil prices and the economy. Category 5 Rita is expected to make landfall, most likely in Texas, by the weekend.
BP PLC began closing some of its refinery operations Wednesday. A barrel of light crude was quoted at $66.80, up 60 cents, in trading on the New York Mercantile Exchange.
"Hurricane Rita, and its corollary affect on energy prices, is moving the market today, no question about it," said William Hummer, chief economist at Wayne Hummer Investments. "Uncertainty is poison for the market."
Trading was heavy. The Dow fell 103.49, or 0.99 percent, to 10,378.03. During the last three sessions, the Dow has fallen 263.91, or 2.48 percent.
Broader stock indicators also fell sharply. The Standard & Poor's 500 index fell 11.14, or 0.91 percent, to 1,210.20, and the Nasdaq composite index fell 24.69, or 1.16 percent, to 2,106.64.
Bonds rose, with the yield on the 10-year Treasury note falling to 4.17 percent from 4.25 percent late Tuesday. The U.S. dollar fell against other major currencies in European trading. Gold prices were higher.
With no significant new economic data released Wednesday, traders focused on Tuesday's Federal Reserve interest rate hike, which is widely seen as a sign that the Fed is worried about inflation. In its policy statement, the Fed described inflation expectations as "contained' instead of "well-contained."
"It makes me think that the economic risk is more stagflationary than it has been," said Brian Gendreau, investment strategist at ING Investment Management.
The market had been split on whether the Fed would pause its rate hikes in the destructive wake of Hurricane Katrina, but now that it's set a course for a continuation of the rate increases, some investors are beginning to become more concerned about inflation themselves.
Government data emphasizes the "core" rate of inflation; that is, inflation with fluctuations in the cost of energy and food stripped out. But with higher oil prices seemingly here to stay, some on Wall Street are saying that inflation is higher than the government wants to acknowledge.
In company news, insurer American International Group Inc. fell $1.11 to $59.40 after it said late Tuesday it expected $1.1 billion in after-tax losses for the third quarter, mainly because of claims from Hurricane Katrina.
The New York Times Co. fell $2.13 to $30 after the newspaper company said late Tuesday its third-quarter earnings would miss estimates by a wide margin and the company would cut 500 jobs.
Shipping company FedEx Corp. rose $6.15 to $83.15 after it said first-quarter profit rose modestly, weighed down by an accounting charge, while revenue showed solid growth as daily package volume expanded. Setting aside a one-time charge from changing its lease accounting, earnings would have been $1.25 per share, well above analysts' estimates.
Avon Products Inc. fell $3.60 to $27 after the company cut its 2005 earnings forecast late Tuesday. Its new forecast is well below both the company's previous forecast and analysts' expectations. Morgan Stanley downgraded the stock to "equal-weight" from "overweight" on the news.
Declining issues led advancers 2 to 1 on the New York Stock Exchange, where preliminary consolidated volume was 2.55 billion shares, up from 2.31 billion shares at the same time Tuesday.