Stocks dive as oil prices resume climb
Investors are worried that the Fed may raise interest rates stem inflation pressure. Financial shares are hit hard. The Dow is down 1% at mid-morning.
NEW YORK -- A resumption in the rising price of crude oil sent the stock market into its latest tailspin this morning, as investors dumped stocks amid mounting worries that the Federal Reserve may have to raise interest rates to stem inflationary pressures.
Financial shares were hit hard because of fears that major banks and brokerages could suffer another round of credit-related write-offs of the sort that Lehman Bros. announced this week.
As of 9 a.m. PDT, the Dow Jones industrial average was down 127.26 points, or 1%, to 12,162.50. The Standard & Poor's 500 fell 12.23 points, or 0.9%, to 1,346.21. The Nasdaq composite slumped 28.75 points, or 1.2%, to 2,420.19.
Oil jumped more than $4 to nearly $136 a barrel after the government reported that oil inventories fell more than expected last week, raising concerns about the effect on gasoline prices during the peak summer driving season.
The tone of the stock market has turned on a dime in the last four trading sessions.
Until Thursday, the perception was growing that the economy would get past the current downturn. Investors began moving more into stocks, especially ones that perform well at the beginning of an expansion, in anticipation that the economy would take off later this year.
But a weak unemployment report and a huge jump in oil prices Friday sent shudders through the market as investors suddenly worried about the threat of "stagflation" -- weak economic performance exacerbated by rising inflation.
walter.hamilton@latimes.com
