Oil prices reached a high and sent stocks lower Monday, pushing the Dow Jones industrials back below 10,000. But with trading on Wall Street light and losses only moderate, investors seemed to be coming to terms with near-$50 per barrel crude.
As a barrel of light crude for November delivery settled at $49.64, up 76 cents on the New York Mercantile Exchange, stock investors grew more fearful that rising energy prices would slice into corporate profits. Monday's close for crude broke the record settlement price of $48.88 set Friday, and prices reached $49.75 earlier in the session, the highest intraday trading level ever recorded.
However, analysts believed Wall Street, which sold off substantially last week in response to oil's climb, had found a bottom and that some investors were becoming optimistic that a year-end rally might be possible.
"Clearly we've had oil putting a lot of pressure on this market over the past week or so, but given where oil is right now, we would've expected the market to react even more negatively than where it is," said Brian Belski, market strategist at Piper Jaffray. "With productivity and earnings still pretty strong, and inflation tame aside from oil and gas, we think the market still is set up for a positive move in the fourth quarter."
The Dow Jones industrial average fell 58.70, or 0.6 percent, to 9,988.54. It was the Dow's lowest close since Aug. 17, when it last closed below 10,000.
Broader stock indicators were moderately lower. The Standard & Poor's 500 index was down 6.59, or 0.6 percent, at 1,103.52, and the Nasdaq composite index dropped 19.60, or 1 percent, to 1,859.88.
Oil producers and refiners struggled to recover from Hurricane Ivan's damage in the Gulf of Mexico, and global demand continues to tighten, analysts said, making the markets susceptible to even minimal losses in overall production. And investors are worried that if prices rise at the gas pump, consumer spending might be pared back just as retailers prepare for the holiday shopping season.
However, given the relatively small drop in share prices Monday, investors might be accepting the fact that oil prices are in the $40 to $50 range, said Brian Pears, head equity trader at Victory Capital Management in Cleveland.
"Obviously, the closer to $40 we are, the better off we'll be," Pears said. "As you reach $50, you get the risk of speculation. But the inflation data over the past few months has been muted, and it doesn't look like oil is going to have a big impact on the economy, just as long as we can stay at least steady at this price level."
If oil stays around $50 or less, investors will likely look to third- and fourth-quarter earnings. With expectations for the third quarter low after earnings warnings this month, the actual results could be a pleasant surprise to Wall Street.