With crude prices at record highs and the winter heating season just around the corner, Wall Street is having a hard time dismissing worries about rising energy costs.
A number of companies have cited oil prices as they've issued third-quarter profit warnings and reports, and anxiety about crude, which neared US$50 a barrel this week, has weighed heavily on stocks. There's good reason to worry: Energy costs are crimping profits at manufacturers, forcing airlines to cut flights and threatening consumer spending.
Still, some analysts are skeptical about the true impact oil will have on earnings. While the cost of crude is uncomfortably high, the prices of refined products used by consumers and businesses, such as gasoline and natural gas, have not surged at the same pace. That's because their costs are generally tied to inventory levels, rather than crude prices. But for companies that might be in danger of missing expectations, oil could seem like a handy excuse.
"Let's face it, if earnings comparisons don't work out too well, they look for scapegoats," said Sam Stovall, chief investment strategist with Standard & Poor's. "If energy prices are in the news, it's easy to blame it on them."
One in five companies say lofty oil prices are hurting their earnings, according to a survey issued this past week by Financial Executives International and Baruch College's Zicklin School of Business, and 36 percent of manufacturers have reported a negative impact. But two-thirds of chief financial officers surveyed said earnings are not tied to the price of oil in any significant way.
Bargain hunters kept Wall Street mixed on Friday, allowing blue chips to rise despite a new record high for oil prices. But fresh warnings from semiconductor firms sent the tech sector falling, and the three major indexes ended the week substantially lower.
Investors got a lift earlier in the session from a Commerce Department report on durable goods orders for August. While orders for goods designed to last three or more years fell 0.5 percent for the month, a large falloff in aircraft orders was to blame.
Without transportation equipment, durable goods orders actually rose a strong 2.3 percent -- a sign that businesses and consumers may have started spending again after a nervous summer.
The Dow Jones industrial average rose 8.34, or 0.1 percent, to 10,047.24.
Broader stock indicators were narrowly mixed. The Standard & Poor's 500 index gained 1.75, or 0.2 percent, to 1,110.11, and the NASDAQ composite index was down 6.95, or 0.4 percent, at 1,879.48. For the week, the Dow fell 2.3 percent, the S&P was down 1.6 percent and the NASDAQ dropped 1.6 percent. Overall, it was the worst week for the markets since the first week of last month.
Consumers' appetite for large purchases, which help fuel economic growth and benefit earnings, remained uncertain after the National Association of Realtors reported a drop in existing home sales last month.
The association said 6.54 million homes were sold for the month, fewer than economists expected and down from 6.72 million in July.
Friday's economic data, however, had little impact on investors, who seemed to be bargain-hunting after the week's substantial losses.
Advancing issues outnumbered decliners by about 5 to 4 on the New York Stock Exchange, where preliminary consolidated volume came to 1.55 billion shares, compared with 1.62 billion on Thursday.
The Russell 2000 index of smaller companies was up 0.17, or 0.03 percent, at 565.97.
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