Sep 24, 2004 5 min read

By Michael J. Martinez AP Business Writer

NEW YORK (AP) – Investors extended their blue chip selloff Thursday as oil prices neared their all-time highs, renewing Wall Street’s concerns that high energy costs would deflate third-quarter earnings. Only the Nasdaq composite index managed a minimal gain.

Analysts said oil prices, which continued their climb after shooting past $48 Wednesday, would keep consumer spending down and business costs rising, a combination that will squeeze profit margins and lower third-quarter earnings. A barrel of light crude settled at $48.46 Thursday, up 11 cents on the New York Mercantile Exchange, after reaching an intraday high of $49. Crude futures closed at a record high $48.70 on Aug. 19 and set a new intraday record of $49.20 on Aug. 20.

Oil prices were also blamed, in part, for a lower reading on the Conference Board’s index of leading economic indicators, the third straight monthly decline. Investors believed the forward-looking index sent a signal that economic growth has been slowing and would likely taper off through the end of the year.

“When you take a look at the leading economic indicators, it’s very clear that the price of oil is having an impact on the economy,” said Hugh Johnson, chief investment officer at First Albany Corp. “Just look at the negative earnings statements from some of the most stable companies out there. If the markets are going to move higher, we’re going to need some relief on the oil front so that the earnings picture improves.”

According to preliminary calculations, the Dow Jones industrial average fell 70.28, or 0.7 percent, to 10,038.90, the second straight day of losses and third in the last four sessions. The Dow lost more than 135 points Wednesday, and is now at its lowest level since Aug. 17.

Broader stock indicators were narrowly mixed. The Standard & Poor’s 500 index was down 5.20, or 0.5 percent, at 1,108.36, while the Nasdaq composite index gained just 0.72, or 0.04 percent, to 1,886.43.

Stocks listed on the tech-focused Nasdaq were generally oversold far more this year due to a weaker technology sector, and the retreat in blue chips was seen as bringing their valuations back in line with the small-cap stocks common to the Nasdaq.

The Conference Board said its Composite Index of Leading Economic Indicators fell 0.3 percent in August to 115.7, following a drop of 0.3 percent in July and larger than the 0.2 percent drop forecast by economists. The index, which measures the potential for future economic growth, left Wall Street with reduced hopes for a strong finish to the year, although the Conference Board said the three months of declines were not enough to signal an end to growth entirely.

Investors’ concerns about job growth – and the resulting consumer spending – increased as the Labor Department reported a 14,000 increase in first-time jobless claims for the week. While the hurricanes in Florida were blamed for the jump, investors have been hoping for a return to this spring’s strong job growth as a sign of strength in the economy.

“This kind of data doesn’t help because it just adds to the uncertainty that the markets are dealing with,” said Jay Suskind, head trader at Ryan Beck & Co. “You’ve got rising oil prices, economic data that’s mostly OK, questions about jobs and a presidential election all weighing things down.”

One day after Morgan Stanley’s disappointing earnings dragged on the brokerage sector, A.G. Edwards Inc. reported results that also fell short of expectations. The company’s stock edged 8 cents higher to $34.56 even though A.G. Edwards missed estimates by 3 cents per share. Morgan Stanley rebounded 88 cents to $49.60.

A downgrade of the entire petroleum sector by Deutsche Bank weighed heavily on energy stocks, and particularly on ExxonMobil Corp., which was separately downgraded by the brokerage firm because it felt the stock was fairly valued with limited potential to move higher. ExxonMobil dropped $1.14 to $47.72.

Martha Stewart Living Omnimedia Inc. jumped $2.45 to $17.43 after the company announced an agreement with reality television producer Mark Burnett to collaborate on new television programming. The move will refresh the company’s TV offerings as Martha Stewart prepares to serve a five-month prison sentence.

Pharmacy chain Rite Aid Corp. broke even for its second quarter, compared to a loss a year ago. Wall Street had been expecting the company to lose 2 cents per share for the quarter. Rite Aid slipped 17 cents to $3.59.

The tech sector saw another company post a profit warning as Andrew Corp. said it would miss its fourth-quarter forecasts due to higher costs and lower demand. The telecommunications system provider nonetheless rose 78 cents to $12.

Declining issues barely outnumbered advancers on the New York Stock Exchange, where volume was light.

The Russell 2000 index of smaller companies was down 0.09, or 0.02 percent, at 565.80.

Overseas, Japan’s Nikkei stock average fell 0.6 percent. In Europe, Britain’s FTSE 100 closed down 0.5 percent, France’s CAC-40 dropped 1.1 percent for the session, and Germany’s DAX index slid 0.9 percent in late trading

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AP-ES-09-23-04 1622EDT