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The Dow Closes Below 10,000

A. Teymour Golsorkhi

Although Monday's spike in crude fell short of $50 a barrel, the rally was enough to send the Dow below 10,000 for the first time in five weeks.

The Dow lost 58.70 points, or 0.58%, to 9988.54, its first close below 10,000 since Aug. 17. The slide in blue chips followed their worst weekly performance since early August. The S&P 500 declined 6.59 points, or 0.59%, to 1103.52, while the Nasdaq shed 19.60 points, or 1.04%, to 1859.88.

Volume was relatively light at the New York Stock Exchange where less than 1.3 billion shares changed hands and decliners beat advancers 2 to 1. On the Nasdaq, 1.3 billion shares traded, with decliners ahead of advancers by 7 to 3.

In other markets, the 10-year Treasury note rose 10/32 to yield 3.99%, having moved below the key level last week for the first time in almost six months. The dollar rose against the yen and fell against the euro. Gold was higher.

Oil ended at a new record high but off the session's peak, as civil unrest in Nigeria led to production stoppages and added to short-term supply worries. Nymex crude for November delivery gained 76 cents to $49.64. It traded as high $49.74. Prices also closed at record high Friday.

Ken Tower, chief market strategist at CyberTrader, sees "business confidence undermined by the escalating costs of energy."

"This is a time of very tight margins a lot of cost-cutting," said Tower. "The labor markets have not rebounded as expected, so it's a very tough market to pass along higher energy costs to the consumer," said Tower, adding that the yield on the 10-year treasury bond, falling under 4%, suggests that the bond market agrees with that assessment.

Surging oil prices in the last two weeks, much like during the first three weeks of August when the benchmark U.S. crude rose almost 20% and stocks wilted, have become a major factor in market sentiment.

"It's tough to get out of the way of oil prices," said Marc Pado, U.S. market strategist at Cantor Fitzgerald. "Higher oil prices cut into economic growth and raise the cost of goods, but the economy is not strong enough for companies to pass along higher prices for goods, so oil is directly eating into the profit side of the equation."

Bad weather in the Gulf of Mexico, the site of major oil and natural gas facilities, has been a major source of supply worries in the past week. Hurricane Ivan last week swept through the Gulf of Mexico, shuttering offshore operations. Late Sunday, Hurricane Jeanne made landfall in Florida and according to initial estimates, left over 2.3 million residents without power. It is the fourth major hurricane to pound Florida this month.

Despite the string of hurricanes, Wal-Mart (WMT - Cramer's Take - Stockpickr) said it still expects same-store sales to grow 2% to 4% in September. Wal-Mart shares closed up 29 cents, or 0.6%, to $52.52.

Bank of America upgraded Wal-Mart shares to buy rating from neutral, citing share valuation as being the lowest in seven years. The firm also upgraded Family Dollar (FDO - Cramer's Take - Stockpickr) to buy from neutral. Family Dollar is expected to report fourth-quarter earnings of 26 cents a share on Thursday.

In other corporate news, J.P. Morgan's (JPM - Cramer's Take - Stockpickr) Fleming Asset and Wealth Management unit is acquiring a majority interest in hedge fund Highbridge Capital Management for about $1 billion.

Walgreen (WAG - Cramer's Take - Stockpickr) said fourth-quarter earnings jumped 18% to $327 million, or 32 cents a share, beating analysts' estimates by a penny. Shares ended up 22 cents, or 0.6%, to $36.48.

In the energy sector, Westar Energy (WR - Cramer's Take - Stockpickr) said it would miss 2004 estimates as a result of a milder-than-expected summer and some unplanned outages. The company expects to earn between $1.35 and $1.45 a share for the year. Analysts had expected $1.59.

Shares of apparel maker Tommy Hilfiger (TOM - Cramer's Take - Stockpickr) plunged after the company said it is the subject of a grand jury investigation of certain payments to offshore entities. The company said it is cooperating with the probe, which also involves certain employees, but can't predict the outcome of the investigation. Shares of Tommy Hilfiger fell $2.87, or 21.8%, to $10.30.

Looking ahead to corporate earnings, Standard & Poor's said the third-quarter estimate for S&P 500 companies is $16.42 a share.

"While the earnings growth has slowed relative to the first- and second-quarter 2004 increases, the 13.9% gain continues the momentum that has produced record earnings," said S&P equity market analyst Howard Silverblatt. For the fourth quarter, Silverblatt expects growth to increase to 15.5%, which would translate into 2004 earnings growth of 21.5%. For 2005, S&P sees earnings growth slowing to 8.7%.

On the economic front, new home sales jumped 9.4% in August, the biggest gain in about four years, to an annual rate of 1.184 million homes. The consensus forecast was 1.155 million units. July's level was revised lower from 1.134 million to 1.082 million.

Overseas markets were lower, with London's FTSE 100 losing 0.8% at 4541.20 and Germany's Xetra DAX down 0.9% to 3874.37. In Asia, Japan's Nikkei fell 0.3% overnight to 10,859.32, while Hong Kong's Hang Seng fell 0.3% to 13,021.90.