Oil and dollar moves give investors pause
NEW YORK » Wall Street finished essentially flat yesterday, with investors still confident the Federal Reserve will lower rates next week but treading cautiously as oil prices crossed $80 a barrel for the first time and the dollar extended its decline.
Investors widely expect the central bank next Tuesday to lower the benchmark federal funds rate by a quarter percentage point. The decision has not been guaranteed, though, and furthermore, many investors worry that a quarter-point rate reduction might not be enough to address investors' worries over the ongoing housing slump and credit market tightness.
"The more urgent problem than what the price of money is, is the availability of mo-ney," said John Merrill, chief investment officer of Tanglewood Capital Management in Houston.
Meanwhile, crude oil's spike above $80 a barrel, the highest it's ever been in intraday trading, and a weakening dollar fed concerns about inflation. Accelerating inflation is not only a threat to consumer spending, but it also gives the Fed a reason to keep rates where they are.
Crude oil settled at a record $79.91 a barrel on the New York Mercantile Exchange after the U.S. government reported declines last week in crude and gasoline supplies. Jack Ablin, chief investment officer at Harris Private Bank, pointed out that price surges in commodities hit Americans particularly hard because they're denominated in the dollar, which dipped yesterday to a new record low versus the euro.
However, rising energy prices and a falling dollar have some advantages on Wall Street. High energy costs evince strong global demand, and boost the profits of oil and gas companies, while a weaker dollar benefits U.S. companies that draw revenue from overseas.
The Dow Jones industrial average fell 16.74, or 0.13 percent, to 13,291.65, after weaving in and out of positive territory throughout the session. A day earlier, the blue-chip index soared 180 points.
Broader stock indexes were narrowly mixed. The Standard & Poor's 500 index rose 0.07, or less than 0.01 percent, to 1,471.56, and the Nasdaq composite index fell 5.40, or 0.21 percent, to 2,592.07.
The Russell 2000 index of smaller companies fell 4.37, or 0.56 percent, to 777.90.
Declining issues outnumbered advancers by about 9 to 7 on the New York Stock Exchange. Consolidated volume came to a relatively low 2.90 billion shares, down slightly from 2.97 billion shares on Tuesday.
Government bond prices slipped. The yield on the 10-year Treasury note, which moves opposite its price, rose to 4.41 percent from 4.36 percent late Tuesday.
The dollar extended its slide against the euro, hitting a new record low amid expectations of a rate cut from the Fed. The dollar also weakened against the yen -- an important currency for the stock market because of the yen carry-trade, where people invest their yen in higher-yielding dollar assets.
Gold prices also gained. In other commodities trading, wheat rose above $9 a bushel to a fresh peak, before retreating to close at $8.605 a bushel.