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NEW YORK (CNN/Money) -
Stocks tumbled Wednesday, with the Dow and Nasdaq closing at their lowest levels since July amid rising oil prices in the wake of Hurricane Rita and concerns about the Fed's latest interest-rate hike.
As of 5:45 p.m. ET, Nasdaq and S&P futures pointed to a modestly lower open for stocks Thursday when fair value is taken into account.
The Nasdaq composite (down 24.69 to 2,106.64, Charts) lost about 1.2 percent and the Dow Jones industrial average (down 103.49 to 10,378.03, Charts) lost 1 percent, both closing at their lowest levels since early July.
The Standard & Poor's 500 (down 11.14 to 1,210.20, Charts) index sank 0.9 percent, closing at its lowest point since late August.
Small-cap stocks were also hit hard, with the Russell 2000 (down 10.69 to 649.94, Charts) falling 1.6 percent.
Treasury prices rallied, sending corresponding yields lower as investors put money into the perceived safe-haven of bonds. The dollar slipped.
Oil prices rose as Hurricane Rita, now a Category 5 storm, churned toward the Texas Gulf Coast, forcing mass evacuations in Houston, Texas and other areas.
The onslaught was reminiscent of Hurricane Katrina just a few weeks earlier, with Rita also threatening the U.S. oil infrastructure as it headed toward the Texas Gulf Coast.
"Unfortunately, people feel very passionately that with Rita, we may see the same kind of damage and destruction that Katrina brought, particularly with it now elevated to a category 5," said Ned Riley, chief investment strategist at Riley Asset Management.
"The market is also still living with the legacy of the Fed's decision yesterday to raise rates," Riley said. "There are a number of people who feel the Fed should have paused, and should have considered the ramifications of Katrina and Rita."
Fed policy makers boosted short-term interest rates for the 11th consecutive time Tuesday and signaled they would continue to raise rates for the foreseeable future.
While the move was not unexpected, it was perhaps not what a market still reeling from Hurricane Katrina and now facing Hurricane Rita wanted to hear. (For more on the possible impact of Rita, click here).
Longer term, investors may take a less negative response to the Fed policy, said Ken Tower, chief market strategist at CyberTrader.
"The flip side of the rate increase is falling long-term rates, which should exert a positive force on the market," Tower said. "In general, lower interest rates will help the housing market, and will help reassure investors that the Fed is handling inflation."
However, Tower said that this positive force may not be felt for at least a few weeks, what with worries about oil and the fact that late September and early October are typically a tough time of year for the market.
U.S. light crude oil for October delivery rose 60 cents to settle at $66.80 on the New York Mercantile Exchange, retreating from earlier highs after the release of the weekly oil inventory report, which showed a surprise rise in gasoline inventories. Crude had briefly hit $68.10 earlier in the session.
On Tuesday, OPEC said it would release an additional 2 million barrels of oil daily for three months starting Oct. 1. But the move does not resolve what many analysts say is the greater problem of refining capacity, and didn't seem to comfort investors much.
Thursday brings the read on weekly jobless claims and the August read on leading economic indicators, neither of which are typically big market movers.
What moved?
American International Group led the list of property and casualty insurance companies sliding on worries about the impact of Hurricane's Katrina and Rita.
Late Tuesday, AIG (down $1.11 to $59.40, Research) estimated losses related to Katrina and other catastrophes will be about $1.1 billion in the third quarter.
Morgan Stanley (down $0.65 to $51.75, Research) slipped after it reported lower quarterly profit, due to a $1 billion charge from the sale of its aircraft-leasing business. Excluding that charge and other one-time items, the Wall Street investment house reported higher quarterly earnings that topped estimates.
A variety of financial stocks fell, sending the Philadelphia Bank Sector (Charts) index down 1.6 percent.
Advanced Micro Devices (down $0.90 to $22.10, Research) led the list of chip stocks dragging down the Philadelphia Semiconductor (down 8.10 to 458.16, Charts) index, or the Sox. The Sox fell 1.7 percent, with 17 of 19 components declining.
Microsoft (down $0.36 to $25.48, Research) led the list of computer software decliners, helping to send the Goldman Sachs Software index down 1.6 percent.
Avon Products (down $3.60 to $27.00, Research) slumped nearly 12 percent in unusually active New York Stock Exchange trade after the cosmetics maker warned that 2005 earnings won't meet estimates due to weaker-than-expected sales.
FedEx (up $6.15 to $83.15, Research) shares jumped after the package delivery firm reported higher fiscal first-quarter profit and boosted its earnings forecast for the fiscal year.
Oil stocks gained along with the commodity, giving the Amex Oil (up 17.52 to 1,085.13, Charts) index a boost of 1.6 percent.
Market breadth was negative. On the New York Stock Exchange, losers beat winners two to one as 1.93 billion shares changed hands. On the Nasdaq, decliners topped advancers three to one on volume of 1.81 billion shares.
Treasury prices jumped, lowering the yield on the 10-year note to about 4.17 percent from 4.25 percent late Tuesday. Treasury prices and yields move in opposite directions.
The dollar fell versus the euro and the yen.
COMEX gold rose $2.60 to settle at $472.60 an ounce.
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