MARKET SNAPSHOT: U.S. STOCK INDEXES END WITH STIFF LOSSES ON SPIKE IN OIL PRICES

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MARKET SNAPSHOT: U.S. Stock Indexes End With Stiff Losses On Spike In Oil Prices
Dow Jones
June 06, 2008: 04:52 PM EST

Slammed hard by the soaring price of crude-oil futures, which on Friday closed at a new record high, and a rise in the jobless rate, U.S. stocks more than wiped out weekly gains, with the Dow chalking up the 8th-largest point drop in the blue-chip index's history.

NOTE: SOARING PRICE OF CRUDE-OIL HAS GREAT EFFECT ON THE STOCKMARKET.

"It looks crazy because we've had such a low unemployment rate for the past three years. But it's all about the oil, and today was not a pretty ride," said Art Hogan, chief market strategist at Jefferies & Co.

The Dow Jones Industrial Average fell 394.64 points, or 3.1%, to 12,209.81, giving it a weekly loss of 3.5%.

The Dow's decline, which left all 30 of its components in the red, is the heaviest hit in terms of points lost, since Feb. 27, 2007, when it fell 416.02 points.

Heavy losses were posted by the likes of with American International Group Inc. and General Motors Corp. .

NOTE: AMERICAN INTERNATIONAL GROUP INC AND GENERAL MOTORS CORP. ARE MAJOR PLAYERS OF THE STOCKMARKET.

The S&P 500 fell 43.36 points, or 3.1%, to 1,360.69, leaving it down 2.9% for the week, Financials and consumer discretionary led sector declines, with the former off 4.8% and the latter down 4.3%.

The technology-dominated Nasdaq Composite shed 75.38 points, or 3%, to 2, 474.56 for a weekly decline of 1.9%.

The major indexes were prepped for an opening drop by the Labor Department's pre-open report that the unemployment rate in May rose to 5.5%. Economists had forecast a far smaller 0.1 percentage point gain in the unemployment rate, to 5.1%.

But, the skyrocketing price of crude-oil proved to be the stock's market's major undoing.

Helping trigger the surge in crude was the dollar's decline, which fell sharply one day after the European Central Bank opted to leave its key lending rate unchanged at 4%.

Crude moves

Crude futures reached a record of $139.01 in electronic trading on Globex, an all-time high for a front-month future contract, while July crude climbed $ 10.75, or 8.4%, to end at $138.54 a barrel on the New York Mercantile Exchange and climbed as high as $138.80 earlier on.

"Tough talk from Israel, where an official there said attacks on Iran's nuclear facilities looked 'unavoidable,' has ramped up geopolitical concerns. If all that is not enough, a U.S. investment bank has raised its oil price forecast to $150 a barrel by July 4th," said analysts at Action Economics.

On Thursday, crude futures bounced off a key support level of $122 a barrel, but the bounce was "a bounce with steroids," Orlando said.

"The jobs report is going to dominate everyone's attention," said Phil Orlando, equity market strategist at Federated Investors. "The nonfarm payrolls data was fine. In fact, it was a little better than expected, but what is going to be the headline in every paper in America tomorrow is the unemployment rate spiked to 5.5%."

"If people over the course of the day start to focus on wage inflation, nonfarm numbers, et cetera, we might do better after a sloppy opening. Or, investors may decide to shift to the price [rise] of crude over the last two days, and sell on that," said Orlando in outlining a scenario that played out during the session.

Other commodities trade had gold futures climbing more than $23 an ounce to end the week with a gain of 0.8%, with August gold up $23.50 at $899 an ounce.

Friday's volume on the New York Stock Exchange neared 1.5 billion, with decliners topping advancing issues 5 to 1. On the Nasdaq, 950 million shares switched hands, and declining stocks outran those advancing more than 4 to 1.

On Thursday, U.S. stocks snapped a three-session losing streak, rallying strongly after better-than-expected weekly jobless claims data and a strong May sales report from retailing giant Wal-Mart Stores Inc. .

On the heels of that report, Wal-Mart is holding its annual investors' meeting.

Active issues

Shares of National Semiconductor Corp. shares rose 4.8% after it beat earnings and sales forecasts.

The Wall Street Journal reported American International Group is under inquiry as the Securities and Exchange Commission examines the blue-chip insurance giant's involvement in credit default swaps.

The Journal also reported National City Corp. is under heightened scrutiny from federal regulators. Other medium-sized banks are also likely being closely watched as regulators push lenders to raise more capital and improve risk management, the newspaper said.

Also in the banking sector, Societe Generale downgraded Swiss institutions UBS and Credit Suisse to sell from hold, saying it expects the investment banking sector to see revenue fall back to 2005 levels.

Best Buy Co. Inc. fell 6.6% after its downgrade to hold from buy at Deutsche Bank, which cited increased competition from Wal-Mart.

In deal news, Dutch chip-equipment manufacturer ASM International said it received a preliminary approach from Applied Materials about potentially buying two business units for $400 million to $500 million.

(END) Dow Jones Newswires
06-06-08 1652ET
Copyright (c) 2008 Dow Jones & Company, Inc.

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