Stocks plunge, then rebound, as dive in oil offsets economic fears
In a wild trading session, the stock market on Thursday recouped most of its deep early losses as optimism about plummeting oil prices helped offset more downbeat economic data.
The surprise decision by the Obama administration and other developed countries to release oil reserves and boost global supplies amounted to a new attempt to bolster the faltering recovery.
“They’re throwing the consumer a bone,” said Adam Klopfenstein, a commodities strategist at Lind-Waldock in Chicago.
U.S. crude oil futures ended trading in New York down $4.39 to $91.02 a barrel, the lowest price since mid-February, when energy prices began to soar amid escalating Mideast unrest.
The stock market plunged at the opening of trading as energy and other commodity-related shares sank, and as investors reacted to another batch of weak economic reports, including a rise in weekly claims for jobless benefits.
But shares of airlines, retailers and other companies that could benefit from lower energy costs helped pull the market up from its lows. Late in the session the report of an agreement between Greece and other euro-zone countries on austerity measures in the debt-hobbled country gave Wall Street a further lift.
The Dow Jones industrial average closed off a modest 59.67 points, or 0.5%, to 12,050.00 after being down as much as 234 points.
Most broader market indexes ended with smaller losses, and some were in the green. The tech-dominated Nasdaq composite added 17.56 points, or 0.7%, to 2,686.75.
Stocks have mostly been in a downdraft since late April as the global economy has weakened, raising fears of a double-dip recession.
Federal Reserve policymakers, and many economists, say the recovery has merely hit a “soft patch” and that growth should pick up in the second half of the year.
But Fed Chairman Ben S. Bernanke sounded less convincing Wednesday as the Fed pared its economic growth estimates for 2011 and 2012. Bernanke warned that head winds holding back the recovery “may be stronger or more persistent than we thought,” although he insisted the economy wasn’t in danger of falling back into recession.
The surge in oil prices since February has been one of the main factors contributing to slower growth by taking a bite out of consumers’ spending power. That made oil a prime target for the Obama administration as it searched for ways to underpin the economy, analysts said. Crude already has pulled back from a peak of $113.93 a barrel in late April, and pump prices have followed.
The attempt to drive oil lower comes as the Fed completes the economic-stimulus plan it launched in November -- a program of buying $600 billion in Treasury bonds in an effort to pump money into the financial system. That plan has gotten mixed reviews, and the central bank appears reluctant to commit to further stimulus.
Meanwhile, Republican leaders are pushing for massive spending cuts to slash the federal budget deficit. Although most Americans see the need to cut the deficit, deep spending reductions would be a further drag on the economy.
That’s where a sustained drop in oil prices could help. “It’s like a tax break for consumers,” said Dave Rovelli, a trader at brokerage Canaccord Genuity in Boston.
But he noted that it wasn’t clear crude prices would fall further or even maintain Thursday’s drop.
"If it only lasts a day it isn’t going to accomplish anything” at the gas pump, he said.
-- Tom Petruno
Photo: Lower gas prices being posted this week at a service station in Little Rock, Ark. Credit: Danny Johnston / Associated Press