Oil Prices Engulf Wall Street; Dow Dives 200

Three consecutive record days of relentlessly high crude oil prices and a steep selloff in the financial sector slammed Wall Street on Wednesday, sending stocks to their sharpest one-day decline in nearly a month. 

Today's Market

The Dow Jones Industrial Average lost 206.48 points, or 1.59% to 12814.35, the Standard & Poor’s 500 index lost 25.69 points, or 1.81%, to 1392.57 and the Nasdaq Composite Index slid 44.82 points, or 1.80%, to 2438.49. The consumer-friendly Fox 50 fell 15.74 points, or 1.57%, to 988.27.

Wall Street opened the day on the fence, with stocks trading flat after some better-than-expected economic data, including a report on March's pending home sales and one on labor costs and productivity. But stocks turned sharply lower after crude oil prices defied conventional wisdom and soared once again.

Insurance giant AIG (AIG) took the brunt of the damage on the Dow, shedding 6.8% to lead the decliners. Other financial names like American Express (AXP) and Citigroup (C) took big hits too. Disney (DIS) led the blue-chip index with a 2.9% gain after its solid second-quarter results. 

The Nasdaq Composite declined further than the broader market, with shares of Amazon.com (AMZN) and SanDisk (SNDK) among the biggest decliners. Tech stocks were hurt by Cisco's (CSCO) slowing revenue projections. 

After days of largely ignoring triple-digit oil prices and ugly reports out of the financial sector, Wall Street shifted course over the past two days and started taking notice. Traders began taking money out of troubled financial names like Fannie Mae (FNM) and UBS (UBS) at the same time as oil prices hit new highs. 

The surprising part about crude's latest run was that it came on a day when the government reported a huge and unexpected 5.7 million barrel increase in the nation's stockpiles. What looked like a sudden reprieve from scary oil headlines, including Goldman Sachs' (GS) prediction for $200 a barrel oil, turned into yet another all-time record close. Oil settled up $1.69 at $123.53 a barrel in New York.  

“In a bullish market you can even take bearish news and spin it... At any moment if you take supply off the market we could be in the $130s," Ira Eckstein, president of Area National Trading, told FOX Business. 

A bullish market might be an understatement. Oil prices had already jumped more than 8% over the previous three trading sessions before Wednesday and have surged more than 90% over the past 52 weeks. 

"It is a counterintuitive move...It's sort of a triple-threat," said Art Hogan, chief market strategist at Jeffries & Co, citing oil's impact on corporate profits, consumer spending and as an indicator of inflation. "It looks like this week we've finally found the tipping point that investors are starting to care [about oil prices]."

If $123 a barrel oil wasn't enough for Wall Street, Wednesday was the day financial stocks felt the effect of very ugly earnings reports and gloomy headlines. "That's just pure profit-taking," said Hogan, citing the sector's leading performance over the past several weeks.

Some individual financial names fell on negative corporate news. Fannie Mae (FNM) slid 5.7% after FBR Capital Markets reportedly predicted the lender could post up to another $2.5 billion in losses in 2008. Also, UBS (UBS) declined 5.1% on a Wall Street Journal report that a former UBS insider is helping U.S. prosecutors probe a possible tax evasion case against the bank. 

As Wall Street began to bet that the end of the credit crisis was imminent, banks and mortgage-related companies saw their stock prices rise in the face of earnings reports that fell well below estimates.

“The fundamentals certainly have not gotten any better… I think the 'worst is over belief' is completely delusional," said Peter Boockvar, equities strategist at Miller Tabak. "This has a ways to play out. We had our bear market rally and I think we are topping out."

Meanwhile, the day's economic reports topped estimates. The National Association of Realtors reported a 1% decline in U.S. March pending home sales, a slightly smaller decline than had been expected. The NAR index declined to 83.0 in March as potential buyers had trouble receiving mortgages amid the credit crunch. Shares of home builders like Lennar (LEN) and D.R. Horton (DHI) declined on the NAR report.

"As anticipated, we continue to look for a soft first half of the year, for both housing and the economy, before notable improvements in the second half," Lawrence Yun, chief NAR economist, said in the press release. 

Tech stocks were under pressure Wednesday after Cisco (CSCO) warned of slower-than-expected revenue growth. The maker of routers and other technology infrastructure products beat the Street Tuesday evening with a 5.4% decline in profit to $1.77 billion and a 10.4% increase in revenue. However, Cisco warned it expects revenue growth of 9% to 10% in the current quarter, below its previous range of 16% to 17%. 

Like General Electric (GE) for the broader stock market, Cisco is used by many technology traders as a gauge for how the sector is doing. Shares of Cisco declined nearly 2.2%. 

Corporate Movers 

Microsoft (MSFT) could be making a play for social networking site Facebook, according to published reports. Bankers from the software titan recently contacted Facebook about its willingness to sell itself, according to The Wall Street Journal. Microsoft purchased a 1.6% stake in Facebook in 2007, which valued the company at $15 billion. The latest news comes after Microsoft's bid to acquire Internet giant Yahoo! (YHOO) fell apart last weekend. The Web site AllThingsD.com first reported the Facebook-Microsoft news. 

Sprint Nextel (S) is teaming up with Clearwire (CLWR) to create a new wireless communications company that will be based on WiMAX technology to offer high speed mobile Internet access. The new company, which will be named Clearwire, received $3.2 billion in investments from several major corporations, including cable operator Google (GOOG), Comcast (CMSCA), Time Warner Cable (TWC) and Intel (INTC). Sprint will be the company's majority owner, with a 51% stake. 

Take-Two Interactive's (TTWO) Grand Theft Auto IV became the undisputed heavyweight champion of the video game world, raking in $500 million in sales in its first week alone. The results topped Wall Street's already high expectations and could boost the company's argument that Electronic Arts' (ERTS) offer price undervalues it. Analysts had been looking for $400 million in sales. Grand Theft Auto overtook Microsoft's (MSFT) Halo 3, which sold $300 million in its first week of sales last year.

Walt Disney (DIS) reported a 22% increase in quarterly profit and a 9.5% increase in revenue. Disney's results easily beat the Street and provided some hope that the U.S. consumer is surviving amid rising food and energy costs and scary economic headlines. Boosted in part by a favorable shift in the Easter holiday, Disney's parks and resorts revenue rose 11% in the latest period. 

Cablevision (CVC) said it acquired the Sundance Channel for $500 million. The Sundance Channel was jointly owned by actor-director Robert Redford, CBS (CBS) and General Electric's (GE) NBC. Cablevision also bid $650 million for Long Island newspaper Newsday. 

Foster Wheeler (FWLT), the engineering and construction company, reported a 20% increase in first-quarter profit and saw its shares rise 1.5%. The company's adjusted earnings of $123.9 million, or 85 cents per share, topped estimates by 12 cents. Foster Wheeler's 56% surge in revenue to $1.8 billion also easily beat estimates from Thomson Reuters for sales of $1.48 billion. 

Data Dump

The Labor Department reported business productivity and unit labor costs increased at a 2.2% annualized rate in the first quarter. The smaller-than-expected increase in labor costs is a welcome sign for those worried that the Federal Reserve's interest rate cuts have put too much pressure on inflation. The positive economic data helped boost the U.S. dollar against rival currencies. 

World Markets

The Dow Jones Euro 50, the 50 largest companies of Europe, gained 26.70 points, or 0.69%, to 3871.78. London's FTSE 100 rose 45.80 points, or 0.74%, to 6261.00.

France's CAC 40 Index jumped 34.39 points, or 0.68%, to 5075.31 and Germany's DAX picked up 59.15 points, or 0.84%, to 7076.25.

In Asia, Hong Kong's Hang Seng Index fell 651.92 points, or 2.48%, to 25610.21. Japan's Nikkei 225 rose 52.22 points, or 0.38%, to 14102.48.