Stocks Climb as Oil Extends Losses

Crude futures tumbled below $64, while the July trade deficit widened to record levels. Also in focus: Bristol-Myers, HP

Wall Street's uneasy relationship with energy prices turned downright chummy Tuesday, as stocks finished broadly higher after crude oil futures fell to nearly six-month lows. Investors were also digesting a record-high U.S. trade deficit, personnel shakeups at two blue-chips, and solid earnings reports. The expiration of futures and options this Friday probably also helped equities, says Standard & Poor's Equity Research.

The Dow Jones industrial average rose 101.25 points, or 0.89%, to 11,498.09, its best close since mid-May, paced by General Motors (GM) and Home Depot (HD). The broader Standard & Poor's 500 index added 13.57 points, or 1.04%, to 1,313.11. The tech-heavy Nasdaq composite climbed 42.57 points, or 1.96%, to 2,215.82.

NYSE breadth was decidedly positive, with 25 issues advancing for every 8 declining. Nasdaq breadth was 22-8 positive.

Oil prices continued their recent slide Tuesday, declining for a seventh straight session. In the energy markets, October West Texas Intermediate crude oil futures fell another $1.85 to $63.76 a barrel, despite rebounding briefly on news of a foiled attack on the U.S. Embassy in Syria. BP (BP) said it may seek this week to begin restarting oil production on Alaska's North Slope.

The drop in oil prices has helped boost sentiment over the past week, analysts say. "What was a headwind became a tailwind," says Joe Battipaglia, executive vice president and chief investment officer for Ryan Beck.

Further, the losses could prove lasting for oil and other sagging commodities, others observe (see BusinessWeek.com, 9/12/06, "Will Oil Stay Soft?"). "Between 2001 and 2004, when real yields were negative, an ideal environment for commodities was created," says Jack Ablin, chief investment officer at Harris Bank. "Now that real yields are back above 2.5%, expect commodities to tread sideways."

The trade gap was also in focus Tuesday. The U.S. trade deficit widened to a record $68 billion in July, from $64.8 billion in June, due to high energy costs. San Francisco Fed President Janet Yellen was set to speak after the closing bell.

Declining energy prices should narrow the trade gap in coming months, some analysts say. "While the wider trade gap in July raises some modest downside risk to our forecast for 3.4% real GDP growth, given the role that higher oil prices and sharply lower aircraft exports played in the widening, we believe that this downside risk is limited," says John Ryding, chief U.S. economist at Bear Stearns.

Wednesday's economic calendar holds reports on retail sales, import and export prices, business inventories, and weekly jobless claims. Investors will be awaiting the release of consumer inflation data Thursday.

Among stocks in the news, Bristol-Myers Squibb (BMY) said CEO Peter Dolan will leave the company and named James Cornelius as interim CEO. The drugmaker also announced the departure of general counsel Richard Willard.

Meanwhile, Hewlett-Packard (HPQ) said CEO Mark Hurd will become the computer maker's chairman in January 2007. Hurd succeeds Patricia Dunn, who has come under fire in the past week over the board's methods for investigating news leaks. George Keyworth resigned from H-P's board of directors.

Rival computer maker Apple (AAPL) was higher as the company unveiled new iPod versions and announced it will offer Disney (DIS) movies for download via the iTunes online store.

Fast-food giant McDonald's (MCD) shares climbed to a new six-year high after the company said same-store sales rose 6% in August.

In earnings, Goldman Sachs (GS) was higher after the securities company posted a dip in third-quarter earnings that nevertheless exceeded analysts' expectations.

Electronics retailer Best Buy (BBY) was sharply higher after the company reported 22% higher second-quarter profit on a 13% gain in revenue.

Doughnut maker Krispy Kreme Doughnuts (KKD) said it expected a second-quarter loss on revenues of about $110 million, down from $140 million a year earlier.

Elsewhere, shares of Texas Instruments (TXN) dipped after the chipmaker said sales this quarter will be $3.71 billion to $3.87 billion, down from a July estimate of $3.63 billion to $3.95 billion.

Peer Advanced Micro Devices (AMD) was higher after Lehman Brothers upgraded the company from equal-weight to overweight.

European markets finished higher. In London, the Financial Times-Stock Exchange 100 index gained 44.7 points, or 0.76%, to 5,895.5. Germany's DAX index added 75.39 points, or 1.3%, to 5,873.85. In Paris, the CAC 40 index was up 67.66 points, or 1.34%, to 5,125.97.

Asian markets ended mixed. Japan's Nikkei 225 index lost 75.04 points, or 0.48%, to 15,719.34. In Hong Kong, the Hang Seng index advanced 126.81 points, or 0.75%, to 17,075.4. Korea's Kospi index shed 6.04 points, or 0.45%, to 1,328.04.

Treasury Market

Treasury yields swung lower following a firmer-than-expected 10-year auction. The 10-year note edged up in price to 100-26/32 for a yield of 4.77%, while the 30-year bond rose to 93-23/32 for a yield of 4.91%.