Aug 13, 2005 4 min read

By Ellen Simon AP Business Writer

NEW YORK (AP) – Wall Street retrenched Friday as the trade deficit widened and oil prices surged, while a weak quarterly report from Dell Inc. also disheartened the market.

Traders were displeased when the Commerce Department reported that the trade deficit, the imbalance between what America sells abroad and what it imports, is running higher than last year’s all-time record. The trade deficit rose to $58.8 billion in June, an increase of 6.1 percent from the May deficit of $55.4 billion.

More than half the deterioration in June reflected America’s surging foreign oil bill, which hit a record high of $19.9 billion, an increase of almost 10 percent from May. Analysts say climbing oil prices will send that figure higher in coming months.

Crude oil futures hit new records on reports of U.S. refinery outages. A barrel of light crude closed at $66.86, up $1.06, on the New York Mercantile Exchange.

In company news, a rare disappointment from Dell sent its stock sharply lower and sparked selling in other tech stocks. Its second-quarter revenue was nearly $300 million below analysts’ forecast and its third-quarter outlook was also well below projections. And McDonald’s Corp. fell after soaring Thursday on speculation a real estate company is eyeing its store locations and other property.

According to preliminary calculations, the Dow Jones industrial average dropped 85.58, or 0.80 percent, to 10,600.31 after rising 91.48 Thursday.

Broader stock indicators also sagged. The Standard & Poor’s 500 index fell 7.42, or 0.60 percent, to 1,230.39, and the tech-focused Nasdaq composite index dropped 17.65, or 0.8 percent, to 2,156.90.

Bonds rose, with the yield on the 10-year Treasury note falling to 4.25 percent from 4.33 percent late Thursday. The U.S. dollar was up against the euro. Gold prices were higher.

“The volatility we’re seeing has nothing to do with investors; it has everything to do with traders,” said Sandy Lincoln, chief market strategist at Wayne Hummer Asset Management. “Investors are thinking two, three, four, five or 10 years out. Traders are thinking two, four, five or 10 hours out.”

The market has been watching oil prices obsessively, afraid that higher energy costs could lower consumer spending and increase business expenses. The fear is that higher oil prices, coupled with the Fed’s year-plus streak of interest rate hikes, could plunge the economy into a recession.

“The Fed raising interest rates at the same time oil is going up is like pumping the brakes twice,” said Stephen Wood, portfolio strategist at Russell Investment Group. “If the Fed is raising rates, they will be successful in slowing down the economy. It will happen; it’s like the law of gravity.”

Wall Street is beginning to see hints those fears may be realized. Almost two-thirds of those surveyed for an AP-AOL poll expect fuel costs will cause them financial hardship in coming months, while in April, only half felt that way. Gas futures were trading up 4 cents at $1.99 on the New York Mercantile Exchange; the average price of a gallon of regular gasoline was more than $2.40 per gallon at week’s end, compared with $1.86 a year ago, according to the auto club AAA.

Dell’s report, after the close of regular trading Thursday, sent the stock down $2.94 to $36.64. Its revenues dropped because prices for low-end consumer computers “really have dipped very, very low, and our teams were just too aggressive in following that down,” CEO Kevin Rollins said on a conference call. Goldman Sachs Group Inc. downgraded the stock.

McDonald’s sagged $1.44 to $33.25 after analysts said the chain was unlikely to sell store locations and other property to rumored suitor Vornado Realty Trust. The stock had risen Wednesday on reports of a possible deal.

Maytag Corp. said it will back an offer by Whirlpool Corp. to purchase Maytag for around $1.7 billion, or $21 a share, according to published reports. Maytag rose 22 cents to $19.01; Whirlpool rose $3.70 to $84.40.

Striking British Airways PLC employees returned to work at London’s Heathrow Airport after a strike left 70,000 travelers stranded. The stock fell 16 cents to $52.67. The disruption of British Airways’ flights started Thursday after some of the staff joined an industrial dispute between the airline’s caterer and its work force.

Knight Ridder Inc., the second-largest newspaper publisher in the country, rose $3.39 to $65.75 after it said it plans to buy back 10 million shares of its own stock over the next six to nine months, a move designed to boost the value of its remaining shares.

Declining issues led advancers roughly 2 to 1 on the New York Stock Exchange, where volume was 1.47 billion shares, even with Thursday.

The Russell 2000 index of smaller companies fell 6.37, or 0.96 percent, to 660.

Overseas, Japan’s Nikkei stock average fell 0.01 percent. In afternoon trading, Britain’s FTSE 100 was down 0.24 percent, Germany’s DAX index was down 0.34 percent, and France’s CAC-40 was down 0.72 percent.

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