Hurricane Rita’s wild winds haven’t even reached the Gulf Coast, but they are already knocking down stocks on Wall Street.
“There was no relief on Wall Street today,” said A.G. Edwards market strategist Alfred Goldman. Stocks “continued to be weighed down by rising oil prices and the expectation that the Fed will keep on hiking interest rates.”
Wednesday marked the third straight day of falling stocks.
Investors worried that Hurricane Rita, now churning its way across the Gulf of Mexico on a course to sock Texas, could spur even higher oil prices if it damages oil drilling and refining operations.
U.S. gasoline and heating-oil prices are already extremely high because some of the Gulf Coast refineries Hurricane Katrina knocked out of action three weeks ago have yet to come back on line. In recent days, there has been mounting evidence that those high energy prices, by depleting consumers’ spending power, are exacting a toll on the economy. Retail stocks, in particular, were hammered.
The Dow Jones industrial average tumbled 103.49, or 0.99 percent, to close Wednesday at 10,378.03.
Through the first three days of the week, the Dow has surrendered 263.91 points, or 2.48 percent.
Some observers think the difficulty runs deeper than the uncertainties generated by Rita’s approach.
“The hurricane is going to be blamed for what was already taking place,” said David Klaskin, president of Oak Ridge Investments in Chicago.
In the market’s latest retreat, he noted, “the weakest stocks are retailers.” The pressure on the retail sector reflects Wall Street’s expectation that consumer spending is going to be restrained going forward. In trading Wednesday, Klaskin observed, investors were demonstrating “a real lack of confidence that the consumer is going to continue to carry the market.”
High energy costs are claiming a bigger share of disposable income, he said, and the earlier explosion in mortgage refinancings–which put extra money in consumers’ pockets–has dwindled as an economic force.
For a number of retail stocks, Wednesday’s downturn was simply a continuation of a sell-off that got underway Tuesday, after Federal Reserve Bank officials made it crystal clear the Fed is focused on suppressing inflation through higher interest rates.
Wal-Mart Stores fell hard for a second day, closing down 71 cents, or 1.7 percent, at $42.49–the retail giant’s lowest share price since late autumn of 2000. Dollar General dropped 1.9 percent, to $18.41. Circuit City fell 2.6 percent, to $16. But Target eked out a penny increase, to $50.85.
The publishing sector also took a hit after New York Times Co. issued a downbeat forecast and said it would eliminate 500 jobs. Shares of the owner of The New York Times and the Boston Globe fell $2.13, or 6.6 percent, to a new 52-week low of $30; trading volume was four times higher than normal.
The Times’ troubles, along with a separate job-cut announcement by rival Knight Ridder, helped drag most big newspaper chains lower. Gannett shares dropped 5.1 percent to a new 52-week low of $66.25. Dow Jones declined 1.8 percent; Tribune Co. was off 2.1 percent; Knight Ridder slid 2.2 percent, and Belo dropped 4.3 percent.
The market’s treatment of the newspaper group “was somewhat overblown,” Morningstar analyst James Walden suggested in an interview. The publishing industry’s problems are well known, he conceded: circulation is in a long-term decline, and competition from Internet news providers is drawing away an increasing amount of advertising dollars.
But newspapers continue to enjoy a number of competitive advantages, he said, including a local news franchise that national news oriented Web rivals such as CNN or Fox News can’t match.
The mature publishing group “is certainly going to see some tough times” in the short term, Walden said. But given its competitive characteristics and lush cash-generating ability, “we think that it can be an attractive sector.”
Morningstar considers Washington Post; Tribune Co., publisher of the baiduhai, Los Angeles Times and other papers; and the currently out-of-favor New York Times Co. undervalued at their current prices, he said.
Markets: Hurricane fears pushed the U.S. dollar lower Wednesday.
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But storm worries pushed oil prices up. In overnight trading, oil prices moved along with changes in computer models of Rita’s course, rising on hints that the Texas coast infrastructure faces a direct hit, and easing when new models showed the storm might make landfall at a less economically sensitive region. Oil for November delivery surged sharply early in Wednesday’s session, then moderated to end the day up 60 cents at $66.80 a barrel.
Valero Energy, the nation’s leading petroleum refiner, warned that Rita’s impact on the nation’s energy supply could prove to be a “national disaster.”
The prospect of higher inflation and a slowing economy pushed Treasury bonds higher. The 10-year government climbed 15/32, to yield 4.17 percent.
Other indices experienced the same kind of downturn as the Dow.
The Standard & Poor’s 500 index fell 11.14, or 0.91 percent, to 1210.20. The Nasdaq composite index declined 24.69, or 1.16 percent, to 2106.64.
Local stocks: McDonald’s dropped $1.20, or 3.7 percent, to a close of $31.42. The stock may have been hurt by a profit warning from fast-food rival Jack in the Box. Wendy’s and Yum Brands also fell, but not as steeply as McDonald’s.
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