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THE EVENING WRAP
February 22, 2005 -- 5:04 p.m. EST
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Surging oil and a dipping dollar sent a shudder through U.S. stocks today. Though many analysts downplayed the seriousness of the day's moves, the moves offered a peek at some of the worst-case risks confronting the markets.
Down Goes the Dow
By MARK GONGLOFF
THE WALL STREET JOURNAL ONLINE
Surging oil and a dipping dollar sent a shudder through U.S. stocks today. Though many analysts downplayed the seriousness of the day's moves, the moves offered a peek at some of the worst-case risks confronting the markets.
The Dow fell about 174 points, or about 1.6%, with about 1.74 billion shares trading on the Big Board, its worst one-day point loss since May 2003. Every Dow component fell. The S&P 500 lost 17 points, or 1.45%, and the Nasdaq fell 28 points, or 1.4%. Baying at stocks' heels were a couple of dramatic moves in other markets: crude-oil futures rose above $51 a barrel on the New York Mercantile Exchange, while the dollar fell hard against the euro and the Japanese yen. Though the U.S. economy is not nearly as oil-dependent as it once was, it could have done without a return to $50 oil. And while a gently declining dollar makes U.S. exports more appealing, boosting corporate profits, a falling-off-a-cliff dollar is trouble. And both market moves added to recently bubbling fears of inflation. "Traders whose focus was previously on economic strength and earnings have shifted again to this fear of inflation and higher interest rates," said Ken Tower, chief market strategist at CyberTrader, a unit of Charles Schwab.
In other markets, Treasury bond prices fell, pushing the yield on the 10-year note to its highest level since December. Major European markets were mostly lower, as were most major Asian markets.
The Greenback and Black Gold
But how important were the day's moves in black gold and the greenback? Some analysts said that oil's surge was due more to speculators than to fundamentals -- after all, OPEC's president said the cartel likely wouldn't cut production next month. The dollar's decline also pushed crude higher, since OPEC sells barrels by the buck. And today's dollar scare was brought to you by news that South Korea's central bank planned to diversify its holdings -- a sign, to many traders, that Seoul, the world's fourth-largest holder of dollars, was going to dump truckloads of bucks. Not so fast, many analysts said. For one thing, South Korea has talked before of diversifying, with little noticeable impact on the dollar. And Seoul doesn't want its own currency to get too strong; it would likely step in to prevent a dollar sell-off. "If they diversify, central banks will proceed slowly and carefully," said Meg Browne, senior currency analyst at Brown Brothers Harriman. "They don't want to risk volatility in the market."
Still, the dollar has a host of factors working against it, including massive trade and budget deficits. On its side are Asian central banks, particularly that of China, and they could be the only forces preventing a dollar sell-off. "The trend is down," said Alan Ruskin, research director at 4Cast Ltd. "If the Chinese don't move their currency, the dollar's decline will be more gradual -- perhaps 5% vs. other currencies" this year. "If the Chinese do something, the decline could be 10%, or more."
NATO Pledges Iraq Help
After a summit attended by President Bush, the North Atlantic Treaty Organization, comprising 23 European nations and the U.S., Canada and Turkey, agreed to help train Iraqi security forces. U.S. officials say American and other foreign troops can't leave Iraq until Iraqis are fully capable of handling their own security, a process that has been only occasionally successful so far. Though some critics might grouse that NATO's pledge of help was just about the least it could do, it was a sign that relations have warmed noticeably in the past two years, helped in part by recent trips by Mr. Bush, Secretary of State Condoleezza Rice and Defense Secretary Donald Rumsfeld. Even France, the European nation most bitterly opposed to the war, agreed to help train Iraqi troops, though it will keep its personnel out of the country. Maybe it helped that Mr. Bush, at a dinner with French President Jacques Chirac yesterday, decreed that deep-fried potato strings should be called "french fries" again. Or it may be that the U.S. and Europe realize that, though they may not always like each other, they need each other. But there are still plenty of differences in the relationship, including questions about handling Iran's nuclear ambitions, peace in the Middle East, Chinese military power and NATO's role in a post-Cold War world. "Now the challenge is to move beyond atmospherics, and work on the substance," Elizabeth Sherwood-Randall, adjunct senior fellow for alliance relations at the Council on Foreign Relations, said in a conference before Mr. Bush's trip.
In Iraq, the top vote-getting coalition in the country's recent parliamentary election decided that interim Vice President Ibrahim al-Jaafari will be its candidate for prime minister. Ahmad Chalabi, an exile during the reign of Saddam Hussein and a onetime darling of the Pentagon who promoted claims that Mr. Hussein had weapons of mass destruction, dropped his bid to challenge Mr. Jaafari.
Supreme Court Hears Eminent Domain Case
The Supreme Court heard arguments from homeowners in New London, Conn., that the city's plan to raze their homes to make way for commercial development was unconstitutional. The case could have an impact on other eminent domain spats, and high-court justices expressed some skepticism about the homeowners' arguments. The high court also agreed to hear a Justice Department challenge to Oregon's Death With Dignity Act, which legalizes assisted suicide. About 170 people, mostly terminally ill cancer patients, have used the law to take their own lives in the past seven years. Former U.S. Attorney General John Ashcroft filed a challenge to the law last November, but a federal appeals court said he had no standing to do so and that the matter should be left up to the states. The Supreme Court, which recently rejected an appeal by Florida Gov. Jeb Bush seeking to keep a comatose Florida woman alive, will hear an appeal of the Oregon case during its next session, which begins in October. Chief Justice William Rehnquist, who is suffering from thyroid cancer, may not take part; speculation is growing that he will announce his retirement when the court's current session ends in June.
In the Florida case, a federal appeals court ruled that the woman, Terri Schiavo, should be removed from a feeding tube which has kept her alive for about 15 years. But a circuit-court judge issued an emergency injunction to keep doctors from removing the tube.
Deadly Quake in Iran
An earthquake registering 6.4 on the Richter scale shook the mountainous region of central Iran, south of Tehran, killing some 420 people and injuring about 900 more. Today's quake hit sparsely populated regions and thus was much less deadly than the one that struck the ancient city of Bam, in southeastern Iran, in 2003. That quake killed more than 26,000 people and leveled much of the 2,000-year-old city. Relief officials said their experiences with that earthquake helped prepare them for the latest catastrophe and that relief efforts were running smoothly.
Consumer Confidence More or Less Steady
U.S. consumers are slightly less confident this month than in January, according to a measure by the Conference Board, a private research group. But the Conference Board revised upward its January reading, and February's number was higher than Wall Street economists expected. In that sense, it was better news than last week's report by the University of Michigan that its confidence index, which relies on a smaller sample size, was much lower than expected in February. Economists keep a close eye on consumers, whose spending makes up more than two-thirds of the total economy. Some economists, though, are dubious of consumer-confidence readings, since consumers don't always spend the way they feel. A recent study by University of Richmond economics professor Dean Croushore found that consumer-sentiment gauges generated by the Conference Board and the University of Michigan, both closely scrutinized by Wall Street, were pretty much useless predictors of consumer spending. "People may say they're dissatisfied with the economy, but then they go out and buy a car," Mr. Croushore told the Associated Press.
Home Depot Disappoints
Home Depot said it earned $1.04 billion, or 47 cents a share, in its fiscal fourth quarter, which ended in January, up 9.5% from a year ago. Its sales jumped 11% to $16.81 billion, higher than Wall Street analysts, on average, expected. But its earnings-per-share figure only matched forecasts, after consistently beating estimates in recent quarters. Some observers were also troubled by signs of shrinking profit margins and slower store traffic, and Home Depot's shares fell more than 4%. Goldman Sachs analyst Matthew Fassler said in a research note that he was keeping his "outperform" rating on the No. 1 home-improvement retailer, saying he thought management was capable of growing bigger profit margins -- but he also added that he'd be keeping a close eye on them to make sure his confidence was well-placed.
Separately, Federated Department Stores, which operates Macy's, Bloomingdale's and other retail chains, said it earned $440 million, or $2.55 a share, in its fiscal fourth quarter, down slightly from a year ago. Sales held steady at $5.1 billion. Its results beat Wall Street forecasts, but its shares fell nearly 2%, in part due to reports that it was getting closer to an agreement to buy May Department Stores.
Winn-Dixie Files for Bankruptcy
Hemorrhaging cash and being beaten soundly by retail behemoth Wal-Mart and other competitors, regional grocery-store chain Winn-Dixie filed for Chapter 11 bankruptcy protection. Its already beaten-down shares were cut nearly in half, to about 80 cents a share, in before-hours trading. Its shares were worth about $20 in May 20002 and have crumbled steadily since. Though Winn-Dixie had earlier denied that a bankruptcy was on the way, many observers saw the writing on the wall earlier this month, when it reported a wider-than-expected quarterly loss. The Jacksonville, Fla., company, which operates stores in several Southeastern states and the Bahamas, hasn't reported a profit since 2003 and has been steadily losing market share to its rivals. Winn-Dixie got an $800 million line of credit from Wachovia for its restructuring, in which it hopes to cut costs, juice up its merchandising and build "a sense of excitement" in its stores.
Sirius Wins Nascar Contract
Sirius Satellite Radio agreed to pay $107.5 million to be the exclusive satellite broadcaster of Nascar races. The deal begins in 2007 and is scheduled to last for five years. It marks a tactical victory in the Sirius battle with bigger rival XM Satellite Radio Holdings to win subscribers. Sirius, which has about 1.1 million users, has signed up shock-jock Howard Stern, while XM, which has about 3.2 million users, has the exclusive rights to baseball broadcasts. The Sirius Nascar deal wasn't enough to soothe investors' nerves, however, which were jangled in the morning by news that the Securities and Exchange Commission had subpoenaed a gossip columnist, asking him how he seemed to know ahead of time that Mr. Stern would be signed by Sirius. The company said it didn't think it would be involved in the SEC probe. Traders weren't so sure, sending Sirius shares down more than 5%.
School No Longer Dummer
Soon, jokesters won't have Governor Dummer Academy to kick around any more. The nation's oldest independent boarding school, which has been hearing jokes about its name since its founding in 1763, has decided to drop the "Dummer" from its name. Its board hopes that the move will put an end to jokes such as "Getting smarter at Dummer" and draw students who aren't aware that its guffaw-inducing name is derived from a former Massachusetts governor. The Newbury, Mass., school hasn't decided on a new name yet, but alumni are up in arms about it anyway. "We can glitz this a little to get 10 to 12 boarders who look at this as a national school," Alumnus Thomas Driscoll told the Associated Press. "I say, 'Why don't we get 10 to 12 kids who aren't so shallow?'"
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TODAY'S MARKETS
The Dow Jones industrials fell 1.61%, or 174.02 points, to 10611.20 as surging oil prices and a slumping dollar increased fears of inflation. The Nasdaq composite dropped 1.37%. The dollar weakened sharply after South Korea said it is considering selling dollar reserves.
http://online.wsj.com/article/0,,SB1109073...tml?mod=djemTEW__________________________________
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