NEW YORK – Stocks fell Tuesday as reports of the devastation inflicted by Hurricane Katrina (search) trickled in and pushed oil prices to a record, renewing worry that high energy costs will hurt consumer spending and hamper economic growth.
The Dow Jones industrial average (search) was down 50.23 points, or 0.48 percent, at 10,412.82. The Standard & Poor's 500 Index (search) was down 3.87 points, or 0.32 percent, at 1,208.41. The technology-laced Nasdaq Composite Index (search) was down 7.89 points, or 0.37 percent, at 2,129.25.
Oil futures closed $2.61 higher at $69.81 a barrel on the New York Mercantile Exchange (search), but off their earlier all-time high of $70.85. The hurricane shut most oil facilities in the Gulf of Mexico, increasing fears of a supply shortage.
With oil close to $71 a barrel, investors worried that higher fuel and transportation costs would squeeze corporate profits while consumers curtailed their discretionary spending, analysts said.
"The relationship between oil and stocks remains pretty high: as oil prices go up, stocks go down," said Brad Sorensen, an analyst at Charles Schwab Corp. "The hurricane added more volatility and concern to the markets as nobody really knows the full extent of the damage to oil facilities in the Gulf and in the long term, how the economy is going to react."
Natural gas prices climbed as companies with a Gulf Coast presence said they had either shut down or cut back operations there and disruptions could continue through Thursday. New Orleans is also an important coffee port; coffee prices were sharply higher on commodities markets. Prices for other commodities, including cotton and soybeans, also rose as the storm headed toward farmers in the Ohio Valley.
The increases in energy costs and commodity prices sparked inflation fears.
"Seventy dollar oil is the point where you start to get a bit more nervous," said Ed Keon, chief investment strategist with Prudential Equity Group in New York. He said oil and refinery companies were likely to "invest like crazy" to increase supply, while consumers and companies started using less energy to reduce demand.
Major indexes gained Monday after the storm weakened, but Wall Street's spirits sank Tuesday after the nation's top disaster relief official called the hurricane "catastrophic." The Dow Jones industrial average was down more than 100 points in late afternoon trading, but narrowed its losses toward the close.
"This is the kind of reaction everyone expected yesterday," said John Caldwell, chief investment strategist for McDonald Financial Group, part of Cleveland-based KeyCorp.
Notes released from the Federal Reserve's (search) last policy maker meeting further aggravated equity investors. The notes signaled that rate hikes could continue into 2006 and said inflation had "ticked up" since the policy makers' previous meeting but indicated they decided not to accelerate the pace of short-term interest rate hikes "for now."
Trucking and airline stocks slid, with the Dow Jones transport index down 1 percent. Fedex Corp. (FDX) shares were off 1 percent to $81.37 on the New York Stock Exchange.
Losses from Katrina could range as high as $26 billion, economic forecasters said. Shares of insurers, including St. Paul Travelers Co. (STA) and Allstate Corp.(ALL) , were down as were shares of Wal-Mart Stores Inc., which said 123 of its U.S. stores had been closed due to the storm. St. Paul dropped 0.72 percent to $43.95 and Allstate eased 0.9 percent to $56.64. Both trade on the NYSE.
Retail shares also declined. Shares of home improvement chain Home Depot Inc. (HD) dropped 1.7 percent to $39.75 on the New York Stock Exchange and chain store Sears Holdings Corp. (SHLD) fell 2.1 percent to $135.28 on Nasdaq. Wal-Mart (WMT) shares slipped 1 percent to $45.19 on the NYSE.
"There's going to be an impact on companies' earnings and consumer spending with oil prices so high," said Franklin Morton, a director of research at Ariel Capital Management, which oversees $6 billion in assets in Chicago. The decline in spending "will be high enough to be felt once companies start reporting third-quarter earnings."
The major indexes briefly halted their slide after a measure of consumer confidence showed that Americans' attitudes about the economy improved in August.
"This is much better than expected," said Scott Wren, senior equity strategist at A.G. Edwards & Sons Inc., of St. Louis. "The bottom line is more than gasoline prices, if jobs are plentiful and their incomes are rising, consumers will feel pretty good, even though gas is costing almost $3."
The Conference Board (search) reported that consumer confidence rose in August. A decline had been expected following a negative reading from another confidence survey released last week.
A Commerce Department report showed that factory orders declined, but less than expected, in July.
The already troubled airline sector, which has been buffeted by labor troubles, pension costs and high oil prices, drooped. AMR Corp. (AMR) fell 71 cents to $12.69; Northwest Airlines Corp. (NWAC) fell 25 cents to $4.94 and Delta Air Lines (DAL) fell 7 cents to $1.20.
Oil companies continued to trade higher. Chevron Corp. (CVX) rose $1.03 to $60.54; ConocoPhillips COP) rose $1.34 to $64.41. Valero Energy Corp. (VLO) rose $4.91 to $96.79 after shareholders of Premcor Inc., one of the nation's largest independent refiners, agreed to Premcor's purchase by Valero. Premcor fell $8.32 to $73.29 before trading was halted while the final shareholder vote was tallied.
Some gaming stocks fell again as casino operators assessed the damage to their Gulf Coast properties, which included reports of some casinos being swamped with water to the third floor. Pinnacle Entertainment Inc. fell 72 cents to $21.35. Isle of Capri Casinos Inc. (ISLE) fell 65 cents to $22.87.
Other retail stocks also slid after the International Council of Shopping Centers said sales fell for the fourth straight week. Retailers report August sales on Thursday and the market is not optimistic. J.C. Penney Co. Inc. (JCP) fell $1.82 to $48.66 and Target Corp. slipped $1.58 to $54.14.
In company news, labor leaders said Boeing Co. (BA) and the Machinists union remain far apart just days before the Machinists' contract is to expire on Friday. Boeing fell 84 cents to $66.74 after labor leaders warned of a possible strike at the Chicago plane manufacturer. Boeing submitted a revised offer to the union late Monday that increases payments to workers but that union leaders said did not do enough to address key issues.
Abercrombie & Fitch Co. (ANF) fell $3.93 to $53.80 after it said President and Chief Operating Officer Robert S. Singer is leaving after only 15 months on the job, due to a difference in approach over the teen retailer's plans for international expansion. The company reaffirmed its guidance for full-year income between $3.10 and $3.30 per share on projected sales of about $2.7 billion, including a one-time charge recorded in the third quarter related to Singer's severance package.
Ford Motor Co. (F) fell 2 cents to $9.75 after the company said it plans to fire 400 U.S. salaried employees by the end of this year as part of a restructuring plan, the first time in 30 years that Ford has forced out so many white-collar workers.
Trading was active on the New York Stock Exchange where decliners beat gainers by about 9 to 7. About 1.45 billion shares were traded, close to the 1.46 billion daily average for last year.
On Nasdaq, falling stocks outnumbered gainers by about 3 to 2, and about 1.48 billion shares changed hands, below the 1.8 billion daily average.
The Russell 2000 index of smaller companies fell 1.56, or 0.24 percent, to 653.76.
Overseas, Japan's Nikkei stock average rose 1.16 percent. Britain's FTSE 100 rose 0.53 percent, Germany's DAX index fell 0.43 percent, and France's CAC-40 fell 0.11 percent.
Reuters and the Associated Press contributed to this report.
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