Greenspan Giveth, Oil Taketh Away

Updated from 4:48 p.m. EDT

The old trader's maxim dictates "the trend is your friend." That was certainly the case for oil on Wednesday when crude hit a fresh four-month high even as the Department of Energy reported greater-than-expected supplies piling up and a decline in refinery activity. The oil surge helped wipe out a morning rally for stocks.

Crude rose almost 3% on the day as futures on the New York Mercantile Exchange closed above $53 a barrel for the first time since October. The Dow Jones Industrial Average hit an intraday high of 10,869.83 but finished down 18 points, or 0.2%, at 10,811.97. The S&P 500 was virtually unchanged at 1210.08 vs. its intraday high of 1215.58 and the Nasdaq Composite fell 0.2% to 2067.50 after trading as high as 2084.15.

Oil wasn't the market's only challenge. Federal Reserve Chairman Alan Greenspan trooped up to a House Budget Committee hearing. Fears that the maestro might send a signal of more interest rate hikes than expected had stocks and bonds edgy at the open.

But the 10 a.m. release of his testimony relieved those worries as his prepared remarks barely touched on the economy at all. Instead he focused on looming financial problems in the Social Security and Medicare programs.

Reasonably Good

"The U.S. economy delivered a solid performance in 2004, and thus far this year, activity appears to be expanding at a reasonably good pace," was nearly all he said of note in the speech. "However, the positive short-term economic outlook is playing out against a backdrop of concern about the prospects for the federal budget, especially over the longer run."

In Q&A, Greenspan was asked about fears that central banks liquidating investments in Treasury bonds might cause a problem. Recall that the catalyst for last Tuesday's market drop was an indication from South Korea that it might sell dollar-denominated assets. Not surprisingly, Greenspan wasn't much worried.