The Dow Jones industrial average fell 52.54 points, or 0.5%, to 10,544.9. The broader Standard & Poor's 500 index was down 4.04 points, or 0.33%, to 1,227.16. The tech-heavy Nasdaq composite index lost 22.42 points, or 1.03%, to 2,149.33.
Some stock activity may have been related to the quarterly expiration of futures and options Friday, says Standard & Poor's MarketScope.
Crude oil prices jumped $1.98 to $65.09 a barrel in a very choppy New York trading session amid a drop in crude inventories. Crude oil stocks fell a larger than expected 6.6 million barrels on the week, according to the EIA, while gasoline supplies rose 1.9 million barrels. The Street had been expecting a 1.5 million barrel draw in crude stocks, and a 2.5 million barrel decline in gasoline supplies, says Action Economics. Front-month gasoline rallied over 5 cents a gallon, while heating oil futures were up over 8 cents a gallon.
Thursday's main event is the release of the August overall consumer price index (CPI), which is expected to rise 0.5%, while the core index increases 0.2%. Another surge in oil prices should leave retail gasoline up close to 10% on the month, says Action Economics. But, outside of energy, it should be another benign report -- a view supported by the tame core PPI, says Action Economics. Hurricane Katrina has prompted risk of a further surge in energy prices in September.
Also coming out is the New York Fed "Empire State" index tracking manufacturing in September. Plus, business investories for July will be reported.
Among companies in the news Wednesday, Delta Air Lines (DAL
) and Northwest Airlines (NWAC
) could file for Chapter 11 as early as today, according to The Wall Street Journal. The threat of bankrupcty has become more dire as Katrina disrupted flights and sent jet-fuel prices soaring, the newspaper says.
Chinese search engine company Baidu.com (BIDU
) plummeted 28% after Piper Jaffray initiated coverage with an underperform opinion and a $45 target price. Goldman also started coverage with an underperform opinion.
On the earnings front, investment bank Lehman Brothers (LEH
) enjoyed surge in third-quarter earnings, with a 74% profit gain on MBS and bond underwriting, with those results supportive the financial sector more broadly as the shop is the first in its industry to report.
Health company Abbott Labs (ABT
) issued firm earnings guidance for the next 2 years.
In economic news, U.S. retail sales slumped 2.1% in August after a 1.8% surge in July, weaker than expected. However, excluding autos, sales were up 1.0% following a 0.5% increase in July (revised from 0.3%), stronger than expected. A whopping 12% drop in vehicle sales paced the overall weakness following a better than incentive-driven 10% cumulative gain in June in July. A 4.4% surge in gas station sales boosted the ex-auto sales component; gas sales are up 31% year-over-year.
"While the strength in the non-auto sales should boost Treasury yields and the dollar, the fact that half the gain was in gas sales may damp the impact," says Action Economics.
U.S. industrial production rose 0.1% in August after a 0.1% increase in July. Capacity utilization was steady at 79.8% (July was revised from 79.7%).
Treasury yields rose amid the larger than anticipated headline drop in retail sales. The benchmark 10-year note yield edged up to 4.17%.
European stock markets finished higher on Wednesday. London's Financial Times-Stock Exchange 100 index was up 9.4 points, or 0.18%, to 5,347.4. There was little immediate reaction to reports UK August unemployment rate was unchanged at 2.8% but jobless claims rose less than expected.
Germany's DAX index rose 9.29 points, or 0.19%, to 4,911.17, even though European Central Bank's Trichet expressed concern about higher oil prices and inflation. This gives the impression the ECB's next move is up, not down, says Standard & Poor's MarketScope.
In Paris, the CAC 40 index rose 17.02 points, or 0.38%, to 4,470.43 on short covering and bargain hunting.
Asian markets finished mixed on Wednesday.
Japan's Nikkei 225 index fell 67.7 points, or 0.52%, to 12,834.25 on profit taking after gains over the past few days that pushed major indices to four-year highs. Banking plays such as Mitsubishi Tokyo and Sumitomo Mitsui were weak after leading the market higher recently. Others taking a hit were exporters including Takeda Pharmaceuticals, Toyota Motor, and Sony.
In Hong Kong, the Hang Seng index edged up 16.06 points, or 0.11%, to 15,086.62. Gains in index heavy-weights China Mobile and HSBC Holdings bolstered the market.