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player ready...Will oil prices turn out to be the Grinch that stole Christmas?
Stocks sagged for the second day in a row Wednesday. The reason: Oil prices surged anew–and investors are growing increasingly fearful that painfully high energy costs will sap consumers’ holiday-season buying.
“Stock prices fell as hard as oil prices rose,” observed Joe Liro, of Stone & McCarthy Research Associates.
The impact of higher fuel costs was underscored after the market’s close, when Delta Air Lines and Northwest Airlines, fulfilling widespread rumors, both filed to reorganize under federal bankruptcy protection.
Wednesday morning, investors were jarred by a government report that U.S. crude-oil inventories have declined by a substantially worse-than-expected 6.6 million barrels.
Traders responded to the downbeat news by bidding up oil sharply. Oil for October delivery soared $1.98, to close at $65.09. Heating-oil prices also climbed, promising bigger heating bills for many Americans this winter.
The rising prices fueled concerns that higher energy costs will cut corporate profits, and drain consumers’ spending power. Those worries helped send the Dow Jones Industrial Average down 52.54 to close at 10544.90.
Economically sensitive Dow components helped drag the index lower. Caterpillar was off $1.10, or 1.85 percent, at $58.30. Boeing, where commercial-aircraft production has been halted by a strike, closed down $1.22, or 1.87 percent, at $64.18.
The Standard & Poor’s 500 dropped 4.04 points to 1227.16.
In the tech-heavy Nasdaq composite, weakness in the high-tech sector contributed to a sharp fall of 22.42, to 2149.33.
Tech stocks were hurt by a 28 percent plunge in the price of Baidu.com, the operator of a Chinese Internet search engine. Since its IPO last month, shares of the company known as “China’s Google” have enjoyed a spectacular run-up. But on Wednesday two analysts (employed at securities firms that helped underwrite the IPO) issued reports contending the stock has become significantly overpriced.
The Russell 2000 Index of smaller companies fell 6.78 to 666.35.
Some observers suggested that the market’s decline over the past two days indicates investors are adopting a more realistic understanding on the near-term economic toll Katrina is going to exact.
It is normal for markets to initially tumble after a natural disaster, and then recover, noted Alexander Paris, of Barrington Research Associates. The problem, he said, is that following Katrina’s arrival the market not only did not decline but actually staged a two-week rally, as investors chose to focus on the benefits of the coming rebuilding effort.
With the stock market declines of Tuesday and Wednesday, he said, investors appear to be “starting to come to their senses” about the hurricane’s aftereffects.
Treasury securities fell Wednesday, with the 10-year note dropping 4/32 to yield 4.16 percent.
Local stocks:
– Sears Holding directors approved the repurchase of up to $500 million of the company’s stock. After a protracted run-up that peaked just above $163 in late July, the stock has weakened by about 20 percent.
At least one reason for the pressure on Sears shares surfaced this week, when investor Marty Whitman disclosed that his Third Avenue Value Fund sold 2.25 million shares in the quarter ended July 31.
In a letter released Tuesday Whitman told fund investors that Sears “has to succeed in a big way in order to justify” its current price levels. Sears slipped $1.38, or 1.06 percent Wednesday, to close at $128.87.
– OfficeMax shares climbed $1.76, or 5.6 percent, to close at $33.19.
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– Wrigley shares fell $1.11, or 1.6 percent, to $68.20.
– Packaging maker Smurfit-Stone Container declined 37 cents, or 3.28 percent, to close at $10.90.
– CTI Industries, a Barrington. company whose shares were trading at below $2 as recently as Monday, surged for a second straight day after unveiling a new line of vacuum-storage bags. CTI shares climbed 46 percent, to close at $6.28.