As Oil Prices Soar, Stocks Drift Lower - TheStreet

As Oil Prices Soar, Stocks Drift Lower

Oil reaches a new record high and consumer confidence takes yet another slide. The Dow was off the day's low but was still down, as were the S&P and Nasdaq.
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Updated from 12:23 p.m. EDT

Stocks in the U.S. were falling Friday as oil soared to a new record high and consumer confidence took yet another slide.

The

Dow Jones Industrial Average

was off the day's low, though it was still down by 46 points at 12,947. The

S&P 500

was shedding 4 points at 1420, and the

Nasdaq Composite

surrendered 13 points to 2520.

Equity measures were weak from the outset, but sank further after the University of Michigan's preliminary May consumer confidence index eased nearly another 3 points to a 28-year low of 59.5, reflecting worsening sentiment on both current and future economic conditions. That's well under economist projections for a dip to 62.

Though the report reflects economic deterioration that has already occurred, it still tends to be a closely watched gauge on the health of U.S. consumers, who over the past few months have been buffeted by the housing crisis, spiking gas prices and an uncertain jobs environment.

"It's clear the housing prices, rising food prices and energy prices are the big things that are weighing on consumers' minds now," said Nigel Gault, chief U.S. economist with Global Insight. "But I have to say, as of right now, the sort of numbers we've seen on consumer spending haven't been anywhere near as bad as you might have expected, given where sentiment numbers are going."

Another key story was the

data on housing starts

, which surprisingly jumped in April. The Commerce Department said the number of homes on which construction began last month climbed to an annualized rate of 1.032 million from an upwardly revised reading of 954,000 in the prior month. Economists were looking for a drop to 940,000.

"The main reason forecasters missed the April figure was a big increase in starts for multifamily homes," wrote Tony Crescenzi, chief bond market strategist with Miller Tabak and a contributor to

RealMoney.com

, a sister site to

TheStreet.com

. He pointed out that this figure is normally a volatile one.

Gault said the volatility of that number renders the report a false uptick. "Don't read much into that," he said. "It's still doubtful we're at the bottom."

Crescenzi added that, excluding January 1991, single-family home starts were at their lowest level since 1982. "This is good news, as it will help to clear the massive overhang of unsold homes by limiting the amount of new homes put into the housing stock," he said.

Also, the number of building permits issued rose by 46,000 in April to 978,000, compared with consensus estimate for a drop to 912,000 permits.

Homebuilding stocks overall were lower, and

Toll

(TOL) - Get Report

and

Lennar

(LEN) - Get Report

were each losing ground recently.

Hovnanian

(HOV) - Get Report

lost its early strength, as well, but was meandering just above the flat line.

The other big news was taking place in the oil market, where

crude oil reached $127.82 a barrel

, its highest level ever. Recently, crude was surging $1.93 to $126.05. As usual, the AAA reported another all-time high for gas prices at the pump, as the nationwide average hit $3.787.

Most shares in the energy complex were strengthening, including

Exxon Mobil

(XOM) - Get Report

,

Chevron

(CVX) - Get Report

and

Transocean

(RIG) - Get Report

.

Gold futures were up $19 to $899 an ounce. The U.S. dollar slid by 0.8% against both the euro and the yen.

On the corporate side,

Kohl's

(KSS) - Get Report

slipped 4.4% after the department-store chain knocked down its 2008 profit guidance to between $2.95 and $3.15 a share. The company's first-quarter profit dropped 26.8%, though it did top analysts' pessimistic expectations.

Nordstrom

(JWN) - Get Report

, however, gained ground on its own earnings beat, even as its bottom line shrank by 24%. The specialty retailer also whittled down its full-year outlook. Shares were adding 1.5%.

Away from retail,

Autodesk

(ADSK) - Get Report

came in ahead of projections as the design-software firm saw its first-quarter income rise 14% from the prior year. Still, the stock erased early gains to lose 0.7%.

Compuware

(CPWR)

posted a

lower first-quarter profit

of $61.2 million, or 23 cents a share. That tops the Thomson Reuters estimate by 2 cents a share. Shares started out lower before hiking up 3.2%.

Treasury prices were rising amid the softness in equities. The 10-year note moved up 5/32 in price to yield 3.80% and the 30-year bond was gaining 15/32 in price, yielding 4.52%.

In the main, however, the prices of Treasury securities have been in determined retreat since March, when panic over the credit crisis reached a hilt amidst the

near-collapse

of

Bear Stearns

(BSC)

, and investors embarked on what Morgan Stanley analyst George Gonclaves called a "major flight to quality."

In a research note, Gonclaves pointed out that investors bagged a net total of $55 billion in bonds that month, nearly tripling the February amount, driving up prices and yanking yields sharply lower. "But after this demand was satisfied and we moved pasted the cathartic moments of March," he said, "yields could only go one way -- higher."

Meanwhile, the United Nations said in its mid-2008 report that "the world economy is teetering on the brink of a severe global economic downturn" spawned by the U.S. credit crisis, the dollar's long fall, spiking oil and food prices, and "persisting global imbalances." The U.N. predicted that global growth will pull back sharply this year, to 1.8% from last year's 3.8%, and pegged a recovery only to 2.1% in 2009.

Overseas markets were mainly rising. The Nikkei 225 in Tokyo lost 0.2% overnight, but the Hang Seng Index in Hong Kong rose 0.4%. As for Europe, the FTSE 100 climbed 0.8% and Germany's Xetra Dax jumped 1.1%. The Paris Cac was higher by 0.4%.