Wall Street retrenched on Friday as the US trade deficit widened and oil prices surged, while a weak quarterly report from Dell Inc also disheartened the market.
Traders were displeased when the US Commerce Department reported that the trade deficit, the imbalance between what the US sells abroad and what it imports, is running higher than last year's all-time record. The US trade deficit rose to US$58.8 billion in June, an increase of 6.1 percent from the May deficit of US$55.4 billion.
More than half the deterioration in June reflected the US' surging foreign oil bill, which hit a record high of US$19.9 billion, an increase of almost 10 percent from May. Analysts say climbing oil prices will send that figure higher in coming months.
Crude oil futures hit new records on reports of US refinery outages. A barrel of light crude closed at US$66.86, up US$1.06, on the New York Mercantile Exchange.
In company news, a rare disappointment from Dell sent its stock sharply lower and sparked selling in other tech stocks. Its second-quarter revenue was nearly US$300 million below analysts' forecast and its third-quarter outlook was also well below projections. And McDonald's Corp fell after soaring on Thursday on speculation a real-estate company is eyeing its store locations and other property.
According to preliminary calculations, the Dow Jones industrial average dropped 85.58, or 0.80 percent, to 10,600.31 after gaining 91.48 points on Thursday.
Broader stock indicators also sagged. The Standard & Poor's 500 index fell 7.42, or 0.60 percent, to 1,230.39, and the tech-focused NASDAQ composite index dropped 17.65, or 0.8 percent, to 2,156.90.
Bonds rose, with the yield on the 10-year Treasury note falling to 4.25 percent from 4.33 percent late Thursday. The US dollar was up against the euro. Gold prices were higher.
"The volatility we're seeing has nothing to do with investors; it has everything to do with traders," said Sandy Lincoln, chief market strategist at Wayne Hummer Asset Management. "Investors are thinking two, three, four, five or 10 years out. Traders are thinking two, four, five or 10 hours out."
The market has been watching oil prices obsessively, afraid that higher energy costs could lower consumer spending and increase business expenses. The fear is that higher oil prices, coupled with the Fed's year-plus streak of interest rate hikes, could plunge the economy into a recession.
"The Fed raising interest rates at the same time oil is going up is like pumping the brakes twice," said Stephen Wood, portfolio strategist at Russell Investment Group. "If the Fed is raising rates, they will be successful in slowing down the economy. It will happen; it's like the law of gravity."
Wall Street is beginning to see hints those fears may be realized. Almost two-thirds of those surveyed for an AP-AOL poll expect fuel costs will cause them financial hardship in coming months, while in April, only half felt that way. Gas futures were trading up US$0.047 at US$1.99 on the New York Mercantile Exchange; the average price of a gallon (3.8 liters) of regular gasoline was more than US$2.40 per gallon at week's end, compared with US$1.86 a year ago, according to the auto club AAA.
Dell's report, after the close of regular trading on Thursday, sent the stock down US$2.94 to US$36.64. Its revenues dropped because prices for low-end consumer computers "really have dipped very, very low, and our teams were just too aggressive in following that down," CEO Kevin Rollins said on a conference call. Goldman Sachs Group Inc downgraded the stock.
McDonald's sagged US$1.44 to US$33.25 after analysts said the chain was unlikely to sell store locations and other property to rumored suitor Vornado Realty Trust. The stock had risen on Wednesday on reports of a possible deal.
Maytag Corp said it will back an offer by Whirlpool Corp to purchase Maytag for around US$1.7 billion, or US$21 a share, according to published reports. Maytag rose US$0.22 to US$19.01; Whirlpool rose US$3.70 to US$84.40.
The Russell 2000 index of smaller companies fell 6.37, or 0.96 percent, to 660.
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