Oil Trumps ISM Data, M&A Activity

It was an orderly retreat but the market couldn't avoid taking another hit Wednesday, as crude oil prices reached a new all-time high. Another strong economic report and news of the acquisition of PacifiCare Health Systems (PHS) by UnitedHealth Group (UNH) weren't enough to offset worries about both the inflationary and growth implications of oil at new highs.

Crude oil for August delivery finished up $1.69 to $61.28 a barrel on Nymex, its highest close on record, boosted by supply concerns as Tropical Storm Cindy hits the Gulf of Mexico. Officials estimate that about 3% of the Gulf of Mexico's oil and gas production was curtailed by the storm, which is being trailed by another potential hurricane, Dennis.

In reaction, the Dow Jones Industrial Average fell 100 points, or 1%, to 10,272 while the S&P 500 lost 9 points, or 0.8%, to 1195. The Nasdaq Composite fell 9 points, or 0.5%, to 2069.

Declining stocks bested advancers 18 to 13 in Big Board trading and 17 to 12 in over the counter activity, although trading volume remained modest ahead of Friday's employment report and the coming onslaught of second-quarter earnings results.

Despite oil's surge, even energy stars such as Exxon Mobil (XOM) retreated as continued dollar strength reminded traders that profits for U.S. multinationals are likely to take a hit. Concerns about second-quarter earnings were further fueled by Zoll Medical (ZOLL) cutting its third-quarter EPS forecast. Zoll shares fell more than 10%.

Among other stocks in the news, PacifiCare closed up 6.1% to $77 after hitting $82 prior to its midday trading halt while UnitedHealth gained 0.5% to $53.50. In the fallout from the deal, Humana (HUM)rose 3.7% on the prospect it may also receive a buyout offer. But potential acquirers such as Aetna (AET) and WellPoint (WLP) dipped while Medco Health Solutions (MHS) dropped 4% on fears that UnitedHealth, Medco's biggest customer for pharmacy benefit management, would switch to using PacifiCare, also a benefits operator.