Wall Street staged a modest Rita Rally Thursday after the hurricane closing in on the Texas coast weakened, reducing odds that it would damage key regional oil rigs and refineries.
After moving higher early in the session, oil prices later retreated after Hurricane Rita changed course slightly and was downgraded to a less-destructive Category 4 level.
As oil fell, stocks rose, recording their first gain after three straight declines.
Treasury bonds, considered a safe haven for investors during times of uncertainty, predictably declined as investor jitters eased.
Katrina’s damage to Louisiana refineries three weeks ago tightened the nation’s supply of gasoline, driving fuel costs so high that consumers have grown cautious about spending on goods. That’s why Rita–which has been headed directly towards a region where 12 percent of the nation’s refining capacity is located–has dominated market movements all week.
On Thursday, oil for November delivery initially rose more than a dollar, then reversed course and ended the day down 30 cents, at $66.50 a barrel.
The Dow Jones industrial average rose 44.02 points, or 0.42 percent, to 10,422.05. Investors bid up the price of Dow components likely to benefit from post-hurricane rebuilding, such as Caterpillar (up 1.6 percent), and of retailers like Wal-Mart (up 1.7 percent) that could see better sales if fuel costs moderate. McDonald’s rose 5.3 percent.
The Standard & Poor’s 500 index increased 4.42, or 0.37 percent, to 1214.62.
Weakness in the high-tech and information-technology sectors held down the tech-heavy Nasdaq composite index, limiting its rise to 4.14 points, or 0.20 percent, to 2110.78.
The 10-year Treasury bond fell 5/32, for a yield of 4.18 percent.
Three and out? Merrill Lynch economist David Rosenberg notes that the U.S. is experiencing a rare “triple play” year, in which the Federal Reserve Bank raises interest rates, oil prices rise and stock markets decline. Each of those factors tends to stunt economic growth, one way or another.
Over the past 50 years, Rosenberg said in a gloomy report Wednesday, such a triple whammy has happened only eight times–and in six of those eight events “real gross domestic product growth slowed the following year.”
The average drop in GDP growth following a triple play year is 2.5 percentage points, he says. With this year’s GDP growth estimated in the neighborhood of 3.4 percent, according to Rosenberg, real GDP growth in 2006 could be “1 percent-ish,” well below the 2.9 percent some economy-watchers are currently forecasting.
It seems likely, the economist said, “that equity valuation, credit spreads and the dollar are not presently priced for such an outcome.”
Storm stocks: One winner from Katrina’s destruction is Monaco Coach, an Oregon maker of RVs and trailers, which rose 5.6 percent to $15 after announcing that it is cranking up production to make as many as 3,000 trailers under contract to the Federal Emergency Management Agency.
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Local stocks: Corn Products International skidded $3.21, or 15 percent, to a new 52-week low of $18.05, after the Westchester corn refiner cut its earnings forecast and disclosed it’s involved in a trade dispute with Canadian authorities.
Shares of Chicago-based steel fabricator Ryerson Tull fell 5.6 percent, to a close of $19.95, after an industry analyst lowered a positive rating to neutral. Shares, which have enjoyed a big run-up since the spring, have been trading at their highest level in five years, and remain historically high even after Thursday’s drop.
Exelon shares declined 1.8 percent to $53.04; a Wall Street analyst lowered the utility holding company from “overweight” to “neutral.”
Allstate eked out an 11-cent gain, rising to $51.94, but the property/casualty insurer is still off 9.2 percent since Katrina hit New Orleans.
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