U.S. equities were trading lower in a volatile session Thursday on heightened fears of further turmoil in financial markets and a surge in oil prices back above $120 a barrel due to geopolitical tensions and supply concerns. Higher oil prices were putting pressure on the U.S. dollar index and sending interest rates higher on inflation worries. Gold futures were sharply higher in a flight to safety.
On Thursday, the Dow Jones industrial average was trading 30.86 points, or 0.27%, lower at 11,386.57. The broader S&P 500 fell 1.98 points, or 0.16%, to 1,272.56. The tech-heavy Nasdaq composite index slid 16.74 points, or 0.7%, to 2,372.34.
On the New York Stock Exchange, 19 stocks were trading lower for every nine that were gaining ground, while the ratio was 17-7 negative on the Nasdaq.
Fannie Mae (FNM) shares rebounded slightly while Freddie Mac (FRE) extended its recent decline after the two stocks plummeted Wednesday to their lowest levels in two decades as the market grows more convinced the mortgage giants will have to resort to a federal bailout. The expanded powers that Treasury Secretary Henry Paulson won from Congress in July, which would enable a government rescue of the quasi-governmental enterprises may end up making a bailout more likely instead of staving it off, Bloomberg News reported.
The threat of government action is stoking uncertainty, which is raising the companies' borrowing costs and increasing the odds Fannie and Freddie will need taxpayer funding, analysts and investors told Bloomberg.
Shares of Lehman Brothers (LEH) were lower following reports that the company sought foreign investors, and that the Federal Reserve investigated a July rumor that Credit Suisse planned to pull a line of credit to the company.
On the economic data front, initial jobless claims fell 13,000 to an annualized pace of 432,000, lower than the anticipated pace of 440,000.
The Philadelphia Fed index rose to -12.7 in August from a July reading of -16.3, and wasn't far off an expected bounce to -10. The prices paid index fell to 57.5 in August from a 28-year high of 75.6 in July and the prices received index eased to 27.0 from 28.0 in July.
This report suggests that the pace of decline in manufacturing activity in the Philadelphia region moderated in August, although the survey still points to significantly weaker growth than either the national Institute for Supply Management manufacturing report or some of the regional surveys such as the Empire State reports, John Ryding of RDQ Economics said in an email note. The drop in prices paid is likely due to lower oil prices, but both prices paid and prices received remain elevated, he said.
U.S. leading indicators plunged 0.7% in July, much more than the 0.2% drop that had been forecast, after remaining unchanged in June. The biggest drop in the index in a year stemmed mainly from the decline in building permits, as well as lower stock prices, rising unemployment claims, a tightened money supply and falling manufacturers' orders for consumer goods.
Oil prices jumped dramatically on mounting tensions between the U.S. and Russia after the U.S. signed a deal with Poland to place a missile defense site near Russia's border. Russia's disapproval of the pact compounds the discord between the two countries created by Russia's military actions in Georgia.
There are additional supply concerns as Tropical Storm Fay seems to be headed from Florida toward the Gulf Coast, where oil platforms and key pipelines are located. Any damage to those facilities could interrupt fuel deliveries.
October WTI crude oil futures were up $5.42 at $120.98 a barrel on Thursday.
Among other stocks in the news on Thursday, Salesforce.com Inc. (CRM) reported GAAP earnings of eight cents a share in the second quarter, vs. three cents a share a year ago, on a 49% jump in revenue. The company expects third-quarter revenue to be $272 million to $274 million and earnings between six and seven cents a share, and it sees fiscal 2009 earnings of 29 to 30 cents a share. Standard & Poor's maintained its hold rating, while Piper Jaffray reportedly downgraded the stock to neutral from buy.
Children's Place Retail Stores (PLCE) posted a second-quarter profit from continuing operations of nine cents a share, vs. a 68-cent loss a year earlier, on a 9% rise in same-store sales and a 16% gain in total sales.
Synopsys Inc. (SNPS) reported non-GAAP earnings of 44 cents a share, vs. 32 cents in the third quarter of 2007, on a 13% increase in revenue. The provider of electronic design automation software for semiconductor design firms sees fourth-quarter revenue of $348 million to $356 million and non-GAAP earnings of 36 to 39 cents a share, with fiscal 2008 non-GAAP earnings projected at $1.65 to $1.68 a share. S&P reiterated its hold rating, while Citigroup downgraded it to sell from buy.
Major European indexes moved lower Thursday. In London, the FTSE 100 index was down 0.03% at 5,370.20. In Paris, the CAC 40 shed 1.40% to 4,304.61, while Germany's DAX index fell 1.28% to 6,236.96.
In Asia, Japan's Nikkei 225 lost 0.77% to end at 12,752.21, while Hong Kong's Hang Seng index dropped 2.58% to 20,392.06.
Treasury market
Bond prices lower amid unconfirmed London rumors the Fed was to inject funds into Fannie Mae and Freddie Mac, according to S&P MarketScope. The 10-year note was lower at 101-12/32 for a yield of 3.837%, while the 30-year bond was lower at 100-17/32 for a yield of 4.471%.