Stocks tumbled Wednesday as Hurricane Rita -- upgraded to a category five storm with winds reaching 165 miles per hour -- approached the Texas coast, raising fears of another natural disaster just as Louisiana begins to recover from Katrina. Expectations that the Federal Reserve's tightening cycle still has legs also weighed on sentiment, says Standard & Poor's MarketScope.
The Dow Jones industrial average dropped 103.49 points, or 0.99%, to 10,378.03. The broader Standard & Poor's 500 index was down 11.14 points, or 0.91%, to 1,210.2. The tech-heavy Nasdaq composite index lost 24.69 points, or 1.16%, to 2,106.64.
Besides watching Rita, investors will get initial jobless claims and leading indicators reports on Thursday. The August leading indicators index is expected to decline 0.2%. Weakness will be led by the sharp drop in University of Michigan expectations, predicts Action Economics. The forecast for August extends the notable slowdown evident since the beginning of 2005, and more generally since the middle of last year, says Action Economics.
November West Texas Intermediate crude oil prices settled up 60 cents a barrel at $66.80, supported through most of the session by hurricane fears, as Rita made its way through the Gulf of Mexico. Traders cited the potential for storm damage to Texas refineries later this week.
According to today's EIA inventory report, there was a large build up in gasoline stocks, which rose 3.4 million barrels, compared with expectations for a 200,000 barrel draw down. Distillate supplies, also seen down 200,000 barrels, actually rose 800,000 barrels. Crude showed a 300,000 barrel draw, instead of an expected build. "While the data may temper further gains on Wednesday, Hurricane Rita will remain the market driver for the remainder of the week," says Action Economics.
Other than the energy inventories report, there were no major economic data released Wednesday.
Among companies in the news, FedEx (FDX ) posted better-than-expected first-quarter EPS from operations of $1.25, vs. $1.08 a year earlier, on a 10% revenue rise. The shipping company sees $1.30-$1.45 second-quarter EPS, and raised fiscal year 2006 EPS guidance to $5.25-$5.50, despite economic uncertainty surrounding hurricane effects and volatile fuel prices. The shares jumped on the news.
Lennar (LEN ) says third-quarter EPS will exceed $2.00, above its $1.85 goal and the high end of analysts' estimates. The home builder says it will be increasing its fiscal year 2005 EPS goal in its EPS conference call next week.
Avon Products (AVP ) cut guidance for 2005 earnings per share on general weakness. The cosmetics maker expects flat to down operating profit, low-to-mid single digit rise in 2005 EPS on mid-single digit rise in revenue. Morgan Stanley reportedly cuts to equal weight.
New York Times (NYT ) sees 11-14 cents third-quarter EPS. The publisher says advertising in September has been challenging and visibility is limited. It says August ad revenues rose 1.7%; total revenues rose 0.6% (results include About.com). It plans to cut about 500 jobs.
Treasury prices rose on a Rita-driven flight to safety, says Standard & Poor's MarketScope. The yield on the benchmark 10-year note fell to 4.19%.
European stock markets finished lower on Wednesday. London's Financial Times-Stock Exchange 100 index was down 46.7 points, or 0.86%, to 5,369.7 as Brent crude oil and U.S. crude oil futures rise on worries Hurricane Rita will cause enough damage to slow the American economy.
Germany's DAX index fell 87.64 points, or 1.77%, to 4,875.22, as Germany's RWI economic institute lowered its growth forecast to 0.9% from 1.0% this year and to 1.4% from 1.8% next year due to higher oil prices and political uncertainty.
In Paris, the CAC 40 index lost 63.74 points, or 1.41%, to 4,468.06.
Asian markets finished mixed Wednesday.
In Tokyo, the Nikkei 225 index rose rose 48 points, or 0.37%, to 13,196.57. Positive sentiment reflects optimism toward economic growth, support for recently reelected Prime Minister Koizumi, and demand from foreign investors seeking higher returns outside the U.S. and major European markets, says Standard & Poor's MarketScope. The broad-based TOPIX index climbed 5.18 points, or 0.38%, to 1357.71. Both of Japan's major stock indices closed at four-year highs. Banking issues were among the best performers by index points.
Hong Kong's Hang Seng index fell 18.24 points, or 0.12%, to 15,223.62 after the Hong Kong Monetary Authority raised its benchmark rate by 25 basis points to 5.25%, matching the Federal Reserve's hike in the federal funds rate. Hong Kong generally keeps pace with U.S. interest rates since its currency is pegged to the greenback, says Standard & Poor's MarketScope.