Stock Prices Tumble as Oil Surges

The Dow Jones industrials bled 166 points Thursday to a five-week low as another surge in oil prices heightened fears on Wall Street that energy costs could upend the U.S. economy.

Triggered by a rally that caused crude oil futures to briefly touch $60 a barrel, the sell-off knocked the Dow to its lowest closing level since May 17 as the index suffered its steepest one-day drop in more than two months.

In New York trading, near-term crude futures climbed $1.33 to settle at a record $59.42, after hitting an intraday mark of $60.

The economic effect of spiraling energy costs was brought into focus as FedEx Corp., Del Monte Foods Co. and trucking firm Covenant Transport Inc. issued disappointing financial results or earnings forecasts, blaming oil prices in part.

“We’ve been a little surprised that the market has held up as well as it has recently, so we’re not surprised to see this sell-off,” said Dick Green, president of investing website Briefing.com. “A lot of people are concerned about oil prices, and the trend in earnings growth is not encouraging anymore.”

In heavy trading, the Dow Jones industrial average sank 166.49 points, or 1.6%, to 10,421.44. The broader Standard & Poor’s 500 index dropped 13.15 points, or 1.1%, to 1,200.73, and the technology-heavy Nasdaq composite declined 21.37 points, or 1%, to 2,070.66.

The sell-off was widespread, as losing stocks outnumbered winners by more than 2 to 1 on the New York Stock Exchange and on Nasdaq, and only two of the Dow’s 30 component stocks managed gains.

Reflecting concerns about energy costs, the Dow transportation average tumbled 3.1% -- its steepest slide since April 8.

Green noted that analysts expected 6% to 8% year-over-year profit growth in the second quarter for S&P; 500 companies and a continuing decline in the rate of growth during the second half. S&P; 500 profits rose 21% in last year’s fourth quarter and 13% in the first quarter.

Wall Street’s two-month rally has stalled this week as crude prices have marched higher, with the Dow losing ground in four straight sessions.

The price of oil has soared 57% in the last year. Even so, it remains below its all-time high when inflation is taken into account. After the February 1979 Iranian revolution, oil traded at $80 to $90 a barrel in today’s dollars.

Keith Stribling, co-portfolio manager of the HighMark Value Momentum mutual fund in Los Angeles, said investors realized that higher energy prices were probably here to stay.

“Clearly, we’re not going back to $20 oil,” Stribling said. “If it’s going to be $45 at the low end and $60 to $70 at the high end, the question now is: How will that impact the economy?”

There were signs Thursday that the effect could be severe.

FedEx was among the day’s biggest movers, slumping $7.35 to $80.77 and pacing the decline in the Dow transports. The company scaled back its profit forecast for the current quarter to $1.10 to $1.25 a share.

“The higher fuel prices are obviously making customers rethink how they manage their supply chains,” FedEx Chief Executive Frederick Smith told analysts.

Rival United Parcel Service Inc. fell $1.32 to $68.91 despite reaffirming its earnings outlook for this year.

Covenant Transport sagged 72 cents to $12.22 after sharply trimming its profit forecast for the current quarter, citing fuel costs that have exceeded its surcharge collections and soft demand for its freight-hauling services.

Trucker Yellow Roadway eased $1.51 to $48.50.

Del Monte slid 49 cents to $10.36 after reporting profit in the latest quarter shy of Wall Street targets. The packaged-food maker pointed to higher costs for steel and oil, among other factors.

On the economic front, the Labor Department said 314,000 Americans filed new unemployment claims last week. Analysts had expected 330,000 claims.

The euro fell to $1.203 -- its lowest level this year -- amid continuing concern about the strength of the European economy.

In other highlights:

* Steel stocks weakened after China reported a 38% surge in its production of the metal last month. U.S. Steel lost $2.45 to $35.16, Nucor shed $2.48 to $47.50, and Reliance Steel & Aluminum fell $1.80 to $37.94.

* Earnings troubles rattled Corinthian Colleges, which sank $2.80 to $13.39, and drugstore chain Rite Aid, which fell 44 cents to $4.11.

But office furniture maker Herman Miller rose $1.10 to $30.89 after topping Wall Street’s quarterly profit expectations.