Major U.S. stock indexes ended Monday mixed after Friday's plunge, in which each of the major U.S. equity indexes fell nearly 3%. Investors' mood was helped by falling oil prices, but tempered by weakness in Lehman Brothers Holdings (LEH) shares after the investment bank announced that it would post a huge second-quarter loss and seek additional capital.
The Nasdaq composite index continued to slide lower, but the blue-chip Dow Jones industrial average and S&P 500 index rebounded a bit as oil prices fell more than $4 per gallon. The market's recent weakness coincided with a shocking $18-per-gallon jump in crude oil prices on Thursday and Friday.
The biggest thing people are wrestling with, says John Thornton, portfolio manager of the Stephens Small and Mid Cap Growth funds, is the "stagflation fear" -- the fear of rising prices alongside weak economic growth. That means investors are watching commodity markets very closely, he says.
Richard Sparks, of Schaeffer's Investment Research, agreed. After months of moving higher despite the rising price of oil, the stock market seems to have shifted lately. "It seems the market is moving in the opposite direction of oil," he says.
Jeffrey Currie, Goldman Sachs' global head of commodities research, said Monday that crude oil prices are likely to hit $150 a barrel this summer season as tighter supplies outweigh weakening demand. Goldman Sachs said last month oil could shoot up to $200 within the next two years as part of a "super spike."
On Monday on the NYMEX, crude oil for July delivery fell $4.19 to $134.35 a barrel. However, the average price of gasoline in the U.S. moved above $4 per gallon.
The blue-chip Dow Jones industrial average rose 70.51 points, or 0.58%, to 12,280.32 on Monday. The broader Standard & Poor's 500-stock index edged up 1.08 points, or 0.08%, to 1,361.76. The tech-heavy Nasdaq composite index fell 15.1 points, or 0.61%, to 2,459.46.
Trading was slow, notes S&P MarektScope. On the New York Stock Exchange, 20 stocks fell for every 11 moving higher. The ratio on the Nasdaq was 20-9 negative.
The dollar index, which plunged Friday following a surge in the U.S. unemployment rate, was higher as President Bush pledged to promote a strong dollar policy at a U.S.-European summit in Slovenia.
U.S. pending home sales index rebounded 6.3% to 88.2 in April, after falling 1% to a record low 83.0 in March. That's the highest index since last October's 89.8, reports Action Economics, which says the big monthly gain has slowed the pace of the year-over-year decline to 13.8%, compared to 21.7% for March. Three of the four regions posted gains, led by a 13.0% climb in the Midwest, an 8.3% increase in the West, and a 4.6% gain in the South. The Northeast declined 1.9%.
Federal Reserve Chairman Ben Bernanke, who last week warned the weak dollar is increasing inflation risks, speaks Monday night. Traders are looking for a sense of the Fed's views on an economy that is giving off mixed signals and on the inflation pressures being produced by soaring oil prices. Comments from other Fed officials Monday suggested higher interest rates may be needed to fight inflation. Timothy Geithner, president of the Federal Reserve Bank of New York, gave a speech Monday defending the Fed's Bear Stearns bailout and urged that investment banks receive similar regulatory scrutiny to commercial banks.