High Oil, Low Dollar Leave Stocks Drooping

Updated from 4:10 p.m. EDT

Stocks in New York were weak for the entire session Tuesday and closed to the downside as a batch of mixed earnings reports, another record low in the dollar and soaring oil prices put selling pressure on the major averages.

At its worst point the Dow Jones Industrial Average took a slide of nearly 170 points, but the index recovered a bit to end down 104.79 points, or 0.82%, at 12,720.23. The S&P 500 lost 12.23 points, or 0.88%, to 1375.94, and the Nasdaq Composite slid 31.1 points, or 1.29%, to 2376.94.

Though the market was sluggish from the outset, the weakness intensified after the greenback fell through the $1.60 mark against the euro for the first time ever.

Still, Win Thin, senior currency strategist with Brown Brothers Harriman, pointed out that there was minimal follow-through after the initial break. "The move is really slow and steady. But the euro is holding onto its gains, and I think it'll keep chipping away and moving higher," he added. "Right now, the market is basically betting that the [Federal Reserve] is going to be done cutting interest rates after this month."

Echoing that sentiment was Joseph Balestrino, fixed-income market strategist with Federated Investors, who predicted another quarter-point Fed cut at the end of the month. The easing cycle, though, is "nearly over," he believes. He said that language in the central bank's statement next week "probably will suggest that the medicine the Fed has administered to this point should work with the passage of time."

The Fed's rate-easing, which has taken down the fed funds rate by 300 basis points since September, has been one of the main downward drivers on the dollar. Exacerbating the situation is the European Central Bank's reluctance to lower its own benchmark lending rate.

The dollar finished at $1.5996 against the euro for a loss of 0.5%, and slipped 0.1% against the yen to 102.96. The dollar index, which tracks the U.S. currency against a basket of major competitors, was down 0.4%.

At the same time, crude oil rocketed to another intraday record of $119.90 a barrel as concerns persisted about production disruptions in Nigeria. Crude closed up $1.89 to $119.37, and gas prices at the pump touched a new high of $3.511, according to AAA. Gold futures ended $7.60 higher at $925.20 an ounce.

Breadth was poor for the day. Roughly 1.94 billion shares changed hands on the New York Stock Exchange, with decliners trouncing advancers by a 7-to-2 margin. Volume on the Nasdaq reached 1.93 billion shares, as losers outran winners 7 to 3.

"The market tends to be somewhat manic," said Jason Pride, director of research at Haverford Investments. Citing last week's massive rally, he remarked, "Before that, people thought we were going into a wholehearted recession. Afterwards, people may have gotten a little excited that we were coming back to growth immediately, and any time the market gets that sort of thought process behind it, it'll be disappointed."

"Everyone's impatient," he added, "and everyone would like to see the market rebound 1,000 points on the Dow in an instant. But things don't tend to happen quite that quickly in the economy."

Corporate earnings, which helped the market advance last week, provided little aid for equities. McDonald's (MCD Quote), one of three Dow components reporting, retreated by 0.6% despite smashing analyst expectations with income that leaped 24% in the first quarter, propelled by soaring global sales and favorable currency-exchange rates.

Another industrial benefitting from the weak U.S. dollar was DuPont (DD Quote), which bested first-quarter projections with earnings growth of 22%, on an adjusted basis. Sales were slightly below estimates. Shares of DuPont lost 4% at $50.16.