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Drop in energy stocks punctures early market rally
June 10, 2010, Thursday
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THE stock market had another late-day slide yesterday, this time because of fears that the Gulf oil spill will send BP into bankruptcy court.
The Dow Jones industrials, up more than 125 points at midday, closed down 41. Most selling came in the last hour, the third time in four days that stocks had a late-day drop.
Investors got a "sell" signal from a news report that quoted an analyst as saying BP could be forced to seek bankruptcy protection in about a month because of the oil spill. Analysts also said there were concerns that the company might have trouble paying its dividend.
Worries about potential fallout from a BP bankruptcy filing were enough to make investors shrug off reassuring words about the economy early in the day from Federal Reserve Chairman Ben Bernanke. BP fell 15.8 percent and selling spread across the market.
The slide in energy stocks including BP and Anadarko Petroleum Corp., which dropped 18.6 percent, undercut the market's upward momentum, said Peter Boockvar, equity strategist at Miller Tabak.
"The oil stocks are getting killed. They're widely owned so anytime you see that kind of activity it makes people nervous," Boockvar said.
The drop came a day after the Dow climbed 123 points on easing concerns that the economy would fall back into recession. The confidence extended into the first part of trading yesterday after Bernanke said debt problems in Europe might only amount to a "modest" drag on the U.S. economy if the financial markets can halt their slide.
He told the House Budget Committee that the economy is getting better but that jobs and housing are likely to remain weak. The enthusiam over his testimony faded after speculation arose that BP wouldn't be able to recover from the oil spill.
That was enough to push some traders out of the market. Many have been anxious since last month that problems from the Gulf spill to spending cuts in Europe would slow an economic recovery. The concerns have pounded U.S. stocks since they set 2010 highs in late April. They are down more than 10 percent, a drop that's known as a "correction."
David Chalupnik, head of equities at First American Funds in Minneapolis, said it's most likely that Bernanke is right that the economy will continue to recover but that trading will remain choppy. He said traders won't get a better sense about how the economy is holding up until July when earnings reports and more economic numbers come out.
"We're probably in the fifth inning of the correction. Maybe the sixth inning," Chalupnik said. "The next month, I think, is just going to be extremely volatile."
The market also took a hit after the euro slid back below US$1.20. The 16-nation currency's inability to stay above that psychological erased an early burst of confidence in Europe's ability to contain its debt problems.
"That US$1.20 level seems to be what people are keying off of so when you break under they sell futures," said Rick Bensignor, chief market strategist at Execution LLC in New York, referring to stock futures for the Standard & Poor's 500 index.
Bensignor also said the guessing about BP's fate made it more likely that the company would run into more trouble. "The talk certainly doesn't help the situation."
The Dow fell 40.73, or 0.4 percent, to 9,899.25.
The Standard & Poor's 500 index fell 6.31, or 0.6 percent, to 1,055.69, while the Nasdaq composite index fell 11.72, or 0.5 percent, to 2,158.85.
Despite the drop in major indexes, advancing stocks narrowly outpaced those that fell on the New York Stock Exchange. Trading volume came to 1.7 billion shares, up from 1.6 billion Tuesday.
The Dow Jones industrials, up more than 125 points at midday, closed down 41. Most selling came in the last hour, the third time in four days that stocks had a late-day drop.
Investors got a "sell" signal from a news report that quoted an analyst as saying BP could be forced to seek bankruptcy protection in about a month because of the oil spill. Analysts also said there were concerns that the company might have trouble paying its dividend.
Worries about potential fallout from a BP bankruptcy filing were enough to make investors shrug off reassuring words about the economy early in the day from Federal Reserve Chairman Ben Bernanke. BP fell 15.8 percent and selling spread across the market.
The slide in energy stocks including BP and Anadarko Petroleum Corp., which dropped 18.6 percent, undercut the market's upward momentum, said Peter Boockvar, equity strategist at Miller Tabak.
"The oil stocks are getting killed. They're widely owned so anytime you see that kind of activity it makes people nervous," Boockvar said.
The drop came a day after the Dow climbed 123 points on easing concerns that the economy would fall back into recession. The confidence extended into the first part of trading yesterday after Bernanke said debt problems in Europe might only amount to a "modest" drag on the U.S. economy if the financial markets can halt their slide.
He told the House Budget Committee that the economy is getting better but that jobs and housing are likely to remain weak. The enthusiam over his testimony faded after speculation arose that BP wouldn't be able to recover from the oil spill.
That was enough to push some traders out of the market. Many have been anxious since last month that problems from the Gulf spill to spending cuts in Europe would slow an economic recovery. The concerns have pounded U.S. stocks since they set 2010 highs in late April. They are down more than 10 percent, a drop that's known as a "correction."
David Chalupnik, head of equities at First American Funds in Minneapolis, said it's most likely that Bernanke is right that the economy will continue to recover but that trading will remain choppy. He said traders won't get a better sense about how the economy is holding up until July when earnings reports and more economic numbers come out.
"We're probably in the fifth inning of the correction. Maybe the sixth inning," Chalupnik said. "The next month, I think, is just going to be extremely volatile."
The market also took a hit after the euro slid back below US$1.20. The 16-nation currency's inability to stay above that psychological erased an early burst of confidence in Europe's ability to contain its debt problems.
"That US$1.20 level seems to be what people are keying off of so when you break under they sell futures," said Rick Bensignor, chief market strategist at Execution LLC in New York, referring to stock futures for the Standard & Poor's 500 index.
Bensignor also said the guessing about BP's fate made it more likely that the company would run into more trouble. "The talk certainly doesn't help the situation."
The Dow fell 40.73, or 0.4 percent, to 9,899.25.
The Standard & Poor's 500 index fell 6.31, or 0.6 percent, to 1,055.69, while the Nasdaq composite index fell 11.72, or 0.5 percent, to 2,158.85.
Despite the drop in major indexes, advancing stocks narrowly outpaced those that fell on the New York Stock Exchange. Trading volume came to 1.7 billion shares, up from 1.6 billion Tuesday.
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