Posted on 05/11/2005 4:43:51 AM PDT by TigerLikesRooster
By MICHAEL J. MARTINEZ, AP Business Writer
Tue May 10, 9:04 PM ET
NEW YORK - Stocks tumbled Tuesday as rising crude oil prices prompted Delta Air Lines Inc. to warn of possible bankruptcy and Wall Street's rumor mill chewed over the possibility of hedge fund losses due to steep investments in troubled General Motors Corp. The Dow Jones industrial average shed more than 100 points.
Delta's news led many investors to wonder whether other companies may fall victim to high energy costs, and added to Wall Street's now-chronic concerns that high oil prices may lead to an economic slowdown, inflation, or a worst-case combination of both.
"A lot of this downturn today coincided with Delta's announcement and the fact that crude was above $52 per barrel," said Brian Williamson, an equity trader at The Boston Company Asset Management. "That's got to make you concerned about who's next as far as companies go and whether this will really hit consumer spending."
In addition, analysts speculated that several global hedge funds had suffered losses from holdings in General Motors' stock and its bonds — downgraded to "junk" status last week. The rumors were unsubstantiated, but were enough to prompt edgy investors to sell.
The Dow fell 103.23, or 0.99 percent, to 10,281.11.
Broader stock indicators also fell sharply. The Standard & Poor's 500 index was down 12.62, or 1.07 percent, at 1,166.22, and the Nasdaq composite index lost 16.90, or 0.85 percent, to 1,962.77.
The bond market rallied as stocks dropped, with the yield on the 10-year Treasury note skidding to 4.21 percent, down from 4.28 percent late Monday. The dollar was mostly lower against other major currencies, while gold prices rose.
Hedge funds — which invest in a wide variety of stocks, bonds and derivatives to maximize returns and are considered riskier than typical stock or mutual fund investments — were said to have been hit hard following the debt downgrades, which eroded the value of GM's bonds, and the significant investment in GM by billionaire investor Kirk Kerkorian's Tracinda Corp.
"Obviously GM's stock got a boost last week on the Tracinda offer, then the bonds got crushed by downgrades, so they would've gotten hurt on both sides of that trade," said Todd Clark, head of listed equity trading at Wells Fargo Securities. "Against the backdrop of crude trading higher ... it's a little unsettling."
Despite the hedge fund furor, GM's stock stayed afloat, rising 20 cents to $31.53.
Crude prices were volatile ahead of Wednesday's government energy inventory report, which often moves crude prices substantially. After rising as high as $53.10, a barrel of light crude for June delivery settled at $52.07, up 4 cents, on the New York Mercantile Exchange. While well off their $58-per-barrel highs, the consistently high prices for oil have exacerbated Wall Street's worries about the economy.
Delta tumbled 10 percent, or 33 cents, to $2.97, after the airline warned it will record substantial losses for the rest of the year, due in great part to high jet fuel prices. It said it may need to file for bankruptcy if its cash reserves fall too low or creditors call in the airline's debts.
In the financial sector, Morgan Stanley fell $1.33 to $49.42 as Chief Executive Phil Purcell told an investor conference the Discover card spinoff would hurt revenues, and that the second quarter was shaping up to be difficult. Morgan Stanley executives also said more employee departures could be forthcoming, but that the company had a deep pool of talent.
Cisco Systems was unchanged at $18.21 ahead of its earnings report, which was released after the close. Cisco beat Wall Street earnings forecasts by a penny per share and had strong revenue growth. The stock added 16 cents to $18.37 in after-hours electronic trading.
The Wall Street Journal reported that the problems plaguing insurer and Dow component American International Group Inc. may have involved more people than just the two recently departed executives, including former Chairman Maurice "Hank" Greenberg. AIG lost $1.31 to $53.27 on the news.
Supermarket operator Great Atlantic & Pacific Tea Co. Inc. said it would undergo a major restructuring, including dropping its operations in Ohio and Michigan and the possible sale of a Canadian division. The company's shares surged 23.4 percent, or $4.28, to $22.43.
Declining issues outnumbered advancers by more than 5 to 2 on the New York Stock Exchange, where consolidated volume came to 1.95 billion shares, compared with 1.88 billion on Monday.
The Russell 2000 index of smaller companies was down 7.87, or 1.31 percent, at 595.04.
Overseas, Japan's Nikkei stock average fell 0.11 percent. In Europe, Britain's FTSE 100 was down 0.36 percent, Germany's DAX index dropped 0.96 percent, and France's CAC-40 lost 0.50 percent.
Ping!
Cuz India and China want their share nowadays.
I wonder if anyone has seen George Sorros lately.
Bush has a good chance of becoming known as the "dwaddling" president of all time.
I think he does currency speculation. He may be eyeing on Chinese yuan.
The President cannot do anything about oil prices. Oil supplies are the highest they have ever been. Release oil from the SPR will not do anything.
The only thing to do is raise interest rates since oil contracts are settled in dollars. The Fed is doing that.
You have to then ask yourself, who is paying $52 for something that is worth about $42?
Bingo!
Don't forget that blind eye turned toward our Southern border.
Heck, I guess if I closed both my eyes, I'd have no problems at all!
In short, if you drive, you are.
Please: NO profanity
The number of Gas refineries has NOTHING to do with oil prices.
I agree we should increase the number of refineries and it would not be up until 2015.
I am in favor of Nuclear fine.
As a conservatarian, I am opposed to government intervention in the free market. Get rid of the gas tax, fine. I have no problem with that. But gas prices are market adjusted prices after taxes.
You might save some money there per gallon, but not much.
Isn't Goldman Sachs heavily into oil futures, which led to steep rise in oil price? I suppose stock market is no longer the attractive playground for them.
I wasn't talking about oil prices I was talking about gas prices. Oil prices are market driven AFTER it is pumped from the ground.
Once it is out of the ground market forces apply.
Let's think about this for a second: The Junk rating means a fairly high risk of default on the bond. BUT THIS IS GM!
Do you really think the government is going to let them go bankrupt?
That means it is a junk bond with a high rate of return that is virtually backed by the US government.
I think it might be a good time to buy GM debt.
Any other opinions?
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