A combination of record-high energy prices, mixed auto sales and disappointing economic data sent the major averages lower Tuesday, after five days of gains.
Dow Jones Industrial Average
ended with a loss of 59 points, or 0.6%, at 10,120. The
, which had a four-day winning streak, was off by 33 points, or 1.7%, at 1859. The
fell 7 points, or 0.6%, to 1099. The 10-year Treasury bond rose 5/32, yielding 4.43%, while the dollar was lower against the yen and euro.
Volume on the
was a light 1.3 billion shares, with declines beating advancers 9 to 7. On the Nasdaq, volume reached 1.5 billion shares, with losers outpacing winners by 2 to 1.
"The price of oil closing at a record high for the year, consumer spending
data and some sour car sales are obviously weighing on the market," said Peter Cardillo, chief market strategist at Global Partners Securities.
Cardillo also noted that investors are wary ahead of the key employment report, which comes out Friday.
Crude oil futures hit a record $44 a barrel Tuesday after OPEC's president said the cartel could do little to ease current supply constrictions. Indonesia's Purnomo Yusgiantoro said spare capacity exists in Saudi Arabia, but that it will take time to get the oil out of the ground.
A report from Dow Jones, which quoted a senior Saudi source as saying Saudi Arabia had the capacity to "immediately" increase its oil output to 10.5 million barrels a day from 9.5 million, had little impact on prices.
Meanwhile, personal income and spending data missed expectations and both
said auto sales declined in July despite boosting incentives.
Crude oil futures, which rose 35 cents to $44.17 a barrel, aren't nearly as high as they were during the 1970s oil shock when adjusted for inflation. But consumers don't react to the inflation-adjusted price of energy, and recent gains threaten to take a bite out of their discretionary income.
Alaron Trading analyst Phil Flynn thinks oil might be reaching a peak, but said the balance of supply and demand is so delicate that the market cannot afford any disruptions. If Russian oil giant Yukos stops selling the 1.7 million barrels of oil a day that it produces, prices could shoot up to $55 a barrel, Flynn predicted.
"If we can get by without losing oil from Yukos or Iran or Venezuela, I think we're getting to the highest price that we're going to see for a while," he said. "But I think that $40 is still the line in the sand, and I don't see oil getting anywhere below $35 a barrel anytime soon."
Flynn, who has accurately predicted oil prices this year, said high energy costs could prompt
Chief Alan Greenspan to raise interest rates at a slower-than-expected pace this year. Last month, Greenspan said the surge in energy prices -- and thus the weakness in consumer spending -- would prove to be "transitory."
In June, soaring energy costs sent personal spending down 0.7%, its biggest decline since September 2001. The weak momentum at the end of the second quarter suggests that spending will need to rebound sharply in the third quarter just to be on a par with the average pace seen in the previous three months.
Economists had been expecting personal spending to decline 0.1% in June after a revised 1% gain in May. Personal income rose a meager 0.2%, as wages and salaries declined.
Tom McManus, an analyst at Banc of America, said if the upcoming winter proves to be colder than average for a third straight year, or if geopolitical concerns keep oil prices at, near or above current levels, "then the recent softness in consumer spending may prove to be more sustainable than the Federal Reserve and capital markets would prefer."
Investors were looking to the major automakers Tuesday for clues about consumer spending in July.
said auto sales fell 4.1% in July from a year earlier.
"Car sales have been weak, but help is on the way," said Jim O'Connor, group vice president, North America marketing, sales and service. Ford fell 2.3% at $14.71.
reported a 3.4% decline in sales during July. The company introduced new incentives to stimulate demand amid heavy competition. In June, GM's sales tumbled 15% as the automaker tried to reduce incentives. Although the Fed raised rates in June, GM still offers zero-percent financing on most of its 2004 model-year vehicles.
was able to post a 6% increase in sales last month. Daimler fell 1.5% at $43.89 while GM slipped 0.5% at $43.07.
Stocks have proven to be quite resilient over the past week and ended Monday's session higher despite some specific terrorist threats on financial institutions in New York and Washington.
Some analysts say the market has held up well because investor sentiment has turned bearish. AMG reported equity outflows of $187 million in the week ended last Wednesday, and the American Association of Individual Investors survey now shows more bears than bulls. Investor sentiment is considered a contrarian indicator because the crowd is often wrong.
Still, some analysts also point out that gains over the past week came after about five weeks of selling pressure and that the recent upturn was not indicative of a real change in trend.
In corporate news,
will pay $7.5 million to settle a
Securities and Exchange Commission
investigation into its accounting practices in the late 1990s, when Vice President Dick Cheney was the company's CEO.
said it earned $923 million, or 43 cents a share, in the second quarter, up from $567 million, or 27 cents a share, last year. Revenue surged 12% to $10.5 billion. Analysts had been looking for earnings of 42 cents a share on sales of $10.33 billion. The stock was up 0.5% at $31.41.
said its second-quarter loss widened to a charge-laden $776 million, or 43 cents a share, from $64 million, or 4 cents a share, last year. Excluding items, Qwest lost 16 cents a share, missing estimates for 13 cents a share. Revenue fell 4% to $3.44 billion, missing estimates. Shares were down 20% at $3.17.
Martha Stewart Living
posted a $19 million loss in the second quarter, wider than was expected by the few analysts who still follow the company. The publishing and merchandising house predicted another big loss in the third quarter, but said things should improve by the end of the year. Shares fell 1.3% at $11.25.
fell 14% at $20.29 after saying third-quarter earnings would come in below expectations.
rose 2.7% at $43.19 after raising its third-quarter revenue and earnings forecast, citing higher sales of its Photoshop, Creative Suite and Acrobat products.
Overseas stocks were mixed, with London's FTSE 100 up 0.3% at 4429 and Germany's Xetra DAX adding 0.4% to 3877. In Asia, Japan's Nikkei fell 0.7% overnight to 11,141 while Hong Kong's Hang Seng added 1.3% to 12,357.
On Wednesday, the Institute for Supply Management is expected to release its monthly index on the services sector. Economists expect a reading of 61.5 in July, from 59.9 in June. Factory orders for June also are due out, with economists looking for a 0.5% increase after a 0.3% decrease in May.
Credit Suisse Group
are among companies reporting earnings Wednesday.