Stocks Drill Lower as Oil Falls

PETER A. MCKAY GEOFFREY ROGOW

A drop in oil stocks helped the broader market drill lower on Friday, sealing another weekly decline, as trading was volatile around options expiration.

The Dow Jones Industrial Average declined 62.68 points, or 0.8%, to 8268.64, pulled downward by declines for Bank of America, Intel, Pfizer and Wal-Mart Stores. The benchmark finished lower on the week, falling 3.6%, just its second losing week in the last 10. It was the worst weekly drop for the average since the week ended March 6.

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Energy companies were also pulled lower amid a decline in crude-oil futures. The front-month crude futures contract fell 3.9% on Friday to settle at $56.34 in New York floor trading. Crude was down 3.9% for the week, its first weekly drop in three weeks, and has fallen in two of the last three days.

Exxon Mobil and Chevron shed 0.9% and 2%, respectively, and the S&P 500's energy sector slumped 2.1%, contributing to 1.1% decline Friday in the broad market measure. It sank 10.19 points to finish trading at 882.88. It dropped 5% for the week.

The Nasdaq Composite Index, which is not as heavily weighted with energy companies, fell 9.07 points, or 0.5%, to 1680.14. The benchmark's nine-week string of weekly gains came to an end, as it fell 3.4% over five days.

"We think now is really the time to get more prudent as an investor," said David James, senior vice president at James Investment Research, an analysis and portfolio-management firm in Alpha, Ohio. "It looks like we're about to get the next leg of the bear market."

One of the indicators that concerns Mr. James is the proportion of S&P 500 companies trading above their 50-day moving averages. It now stands above 90%, about 20 percentage points above the level that usually signals a market pullback is on the way, said Mr. James.

He said he has been selling stock lately in favor of lower-risk bond instruments like the Barclays Capital International Treasury Bond fund, an exchange-traded fund that tracks debt issued by foreign governments. It slipped 0.9% on Friday, but has managed a nearly 10% rise since the stock market hit its lows.

Traders had lamented throughout the uptick in stocks that credit markets were failing to improve as well, but in recent sessions, that disappointment has begun to turn.

"The positive lately is the credit markets seem to be functioning," said Thomas Nyheim, a portfolio manager with Christiana Bank & Trust. "There are still a lot of problems, but at least they're functioning."

Analysts continue to be divided over whether this week's declines signal a temporary correction or a lingering malaise. Financials were under pressure as a result of downgrades in credit ratings for nine firms, Peter McKay reports.

Indeed, the London interbank offered rate, or Libor, has fallen to its lowest levels in more than two decades and indicators of stress in the money markets have eased. Banks are also having greater success in raising money without the federal government's backing. J.P. Morgan Chase and Citigroup sold new deals on Friday, and nonfinancial corporations like Microsoft have also recently had successful debt offerings.

But stresses for the financial sector remain. The Treasury Department said that it would give aid through the Troubled Asset Relief Program to life insurers. Shares of most of the companies eligible for aid declined.

Trader Peter McCorry, of Keefe, Bruyette & Woods in New York, said traders viewed the government efforts mostly in terms of its impact on the companies' solvency, and not in terms of potential managerial meddling by government officials -- a concern that has sometimes tripped up bank stocks.

"It seems like the insurers have the option to pass up the money, unlike the banks," Mr. McCorry said. "Looking at it that way, people see the companies getting the money as more likely to live to see another day."

Ameriprise Financial, which said it would decline the Treasury's offer of funds, advanced 1.4%. But shares of Hartford Financial Services Group and Lincoln National, which signaled said that they would accept TARP funds, fell 1% and 0.7%, respectively.

Fitch Ratings also warned that it is considering lowering its credit ratings on nine U.S. financial companies, reflecting their higher level of vulnerability to a tightening in credit that Fitch is expecting All nine names fell. The most hard-hit were Popular, off 9.1%, and Fifth Third Bancorp, off 5.6%.

LATICONOMICS

Friday, May 15, 2009