Crude oil drops to $124; Dow up 30

By Charley Blaine and Elizabeth Strott

Crude oil fell under $125 a barrel today and appears headed lower thanks to falling U.S. gasoline demand and a stronger U.S. dollar.

Stocks were modestly higher as gains in telecom and tech stocks were offset by weaker energy and financial shares and rising interest rates.

Crude closed at $124.44 a barrel, down 3.1% from Tuesday and off more than 15% from its intraday high of $147.27 on July 11. Wholesale gasoline was down 3.6% to $3.0344 a gallon.

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Both fell after a government report showed a larger domestic supply of gasoline than expected as drivers made fewer trips. Crude oil has fallen in six of the last seven trading sessions.

The Dow Jones industrials, meanwhile, closed up 30 points to 11,632. The Standard & Poor's 500 Index was up 5 points to 1,282, and the Nasdaq Composite Index added 22 points to 2,326 as Apple (AAPL, news, msgs), Research In Motion (RIMM, news, msgs) and Microsoft (MSFT, news, msgs) all moved higher. The Nasdaq-100 Index ($NDX.X) was up 24 points to 1,846. (Microsoft is the publisher of MSN Money.)

After the close, shares of online retailer Amazon.com (AMZN, news, msgs) jumped 8.6% to $76.58 after the company said second-quarter profit doubled from a year ago.

Crude's big drop pushed Chevron (CVX, news, msgs) down 3.5% to $82.65. ExxonMobil (XOM, news, msgs) was off 2.3% to $80.99. The United States Oil Fund (XOM, news, msgs) fell 3.2%. The fund tracks West Texas Intermediate, the benchmark U.S. crude. It's off 16% from its intraday high on July 11.

In addition, Costco Wholesale (COST, news, msgs) was down 11.9% to $63.43 after warning that fiscal fourth quarter earnings would be lower expected. The problem: Energy and commodity prices are rising rapidly, and the company hasn't been able to change its pricing quickly enough.

Insurance giant American International Group (AIG, news, msgs) and AT&T (T, news, msgs) led the blue chips. But financial stocks were losing steam, despite the expected passage of a housing bill that will support Fannie Mae (FNM, news, msgs) and Freddie Mac (FRE, news, msgs). Fannie Mae jumped 11.9% $15; Freddie Mac was up 11.3% to $10.80.

But the Select Sector SPDR-Financial (XLF, news, msgs) exchange-traded fund was down 0.4% to $22.40 after rising 34% in the prior six sessions.

In addition, it appeared that the Federal Communications Commission would approve the merger of XM Satellite Radio (XMSR, news, msgs) and Sirius Satellite Radio (SIRI, news, msgs). XM Satellite rose 10.3% to $10.04. Sirius was up 12.6% to $2.68.

Prices for gold, copper, wheat and soybeans were all lower today as the dollar fell against the euro and the Japanese yen. Gold closed at $922.80 an ounce in New York, down 2.7% from Tuesday.

Electronics, foreign sales boost Amazon

Amazon.com's earnings should give investors a reason to be bullish on Thursday.

The company said second-quarter profit doubled from a year ago to $158 million, or 37 cents a share, on a 41% jump in revenue to $4.06 billion. Analysts had expected earnings of 26 cents a share and revenue of $3.95 billion.

The company expects third-quarter revenue to jump $4.2 billion to $4.425 billion -- up 29% to 36% from the same period in 2007.

With Amazon's big gain after-hours, the stock is still down 17% on the year.

The results got an extra jolt because the company recognized a $53 million non-cash gain from selling European DVD assets. Backing that out, results were in-line with Wall Street estimates, analyst Dan Gelman of McAdams Wright Ragen told Reuters.

And they were good results, analysts said, especially non-U.S. results and sales of electronics. "There's a little bit of relief that at least somebody's doing well in the Internet retail sector," said analyst Martin Pyykkonen of Global Crown Capital.

The company wouldn't say if its business is affected by the national economy. But CEO Jeff Bezos conceded in a conference call that rising fuel prices may benefit the company as shoppers limit driving to regular stores. "Even just driving ten miles these days is a few dollars worth of gasoline and customers we suspect are beginning to take that into account," he said.

The stock had a bumpy after-hours ride. The European asset sale and relatively cautious guidance seemed to confuse investors. Up 8% right after the close, shares fell to a loss of 3% and then recovered again.

Energy prices -- New York close

	Wed.	Tues.	Chg.	Month chg.	YTD chg.
Crude oil (NYMEX) (per barrel)	$124.44	$128.42	-$3.98	-11.11%	29.65%
Heating oil (per gallon)	$3.5501	$3.6782	-$0.1281	-9.04%	34.00%
Natural gas (per million BTU)	$9.7450	$10.0670	-$0.3220	-27.02%	30.23%
Unleaded gasoline (per gallon)	$3.0344	$3.1470	-$0.1126	-13.34%	21.82%

When will motorists see relief at the gas pump?

Crude fell in part because Hurricane Dolly spared the critical infrastructure of oil-and-gas platforms and pipelines along the Gulf Coast from Texas to Alabama. At the same time, prices appear to have broken after months of gains.

The next question is when consumers will see any relief. They may be seeing some relief already.

AAA's Fuel Gauge report estimated the national average retail price of gasoline at $4.042 a gallon today, down a penny from Tuesday and down 7 cents from its $4.114 high on July 17.

But if crude can push under $120 -- a realistic possibility, says analyst Peter Beutel of Cameron Hanover -- retail prices should drop under $4 a gallon sometime in the next few weeks.

The Energy Department this morning said oil supplies fell 1.5 million barrels last week. Analysts had expected a drop of 1.9 million barrels.

Gasoline supplies increased by 2.8 million barrels, a greater increase than analysts had expected. Distillate supplies were also up more than expected, rising by 2.4 million barrels last week.

Price relief can't come soon enough

But for Costco, relief can't come soon enough. Costco shares slumped after the company warned that fiscal fourth quarter earnings would be "well below" the consensus Wall Street estimate of $1 a share. The problem, the company said, is that the soaring cost of energy and commodities is squeezing profits. Sales aren't a problem; customer traffic is still strong.

"This move is highly unexpected," analyst Brian Sozzi of Wall Street Strategies told MarketWatch. "Consumers are drilling down to ask, 'Do I need that big container of 10-pound soup?' "

Although Costco also said it would boost its stock buyback program by $1 billion to $6.8 billion, the profit warning came as a shock.

Investors had bid up the stocks of discounters in recent months, assuming they were a safe play in a rotten stock market. Because of the Costco announcement, Wal-Mart Stores (WMT, news, msgs) was down 1.6% to $58.09. BJ Wholesale (BJ, news, msgs) was down 9.5% to $36.89, and Target (TGT, news, msgs), down most of the day, finished up 0.6% to $46.22.

WaMu shares tumble after big loss

Investors fled Washington Mutual (WM, news, msgs) shares this afternoon after the company reported a $3.3 billion loss. The stock fell 20.1% to $4.65.

WaMu's loss, equal to $6.58 per share, was a huge decline from a profit of $830 million, or 92 cents per share, last year. Excluding a one-time charge related to its $7.2 billion capital deal in April, the nation's largest savings bank lost $3.34 per share, badly missing analysts' estimates of $1.05 per share.

WaMu said its provision for loan losses rose to $5.9 billion from $372 million in the same period last year and $3.5 billion in the first quarter.

• Video: Check out the latest on WaMu

WaMu was slammed by the mortgage-market meltdown, because "so much of their business has been in the lower-quality loans," said Stephanie Hall, an analyst at Gradient Analytics, to Bloomberg News. She said WaMu's mortgages are "higher risk relative to other large-capitalization banks."

The company's continuing struggles with the mortgage mess prompted Moody's Investor Services to caution late yesterday that it may downgrade WaMu's ratings to junk.

Banks and brokerages across the globe have racked up $462 billion in write-downs and credit losses related to the mortgage mess, and they've raised $345 billion in new capital, according to data from Bloomberg.

AT&T, Pfizer earnings jump; investors cheer

Earnings from Dow components AT&T and drug maker Pfizer (PFE, news, msgs) cheered investors today.

AT&T earned $3.77 billion, or 63 cents per share, in its latest quarter -- a 30% jump from $2.9 billion, or 47 cents, a year ago. Excluding items, Ma Bell earned 76 cents, in line with analysts' estimates. Shares were up 3.9% to $33.06.

Pfizer said it earned $2.78 billion, or 41 cents per share, during the quarter. That's a jump from the $1.27 billion, or 18 cents per share, a year ago.

Excluding items, Pfizer earned 55 cents per share, beating Wall Street expectations by a penny.

Shares rose 3.9% to $19.07.

McDonald's (MCD, news, msgs) earned 94 cents per share, topping analysts' estimate of 86 cents. Shares, however, fell 0.8% to $59.66.

Boeing earnings disappoint

Aerospace giant Boeing (BA, news, msgs) said second-quarter net income declined 19% to $852 million, or $1.16 per share, from $1.1 billion, or $1.35 per share, a year ago.

Excluding items, the aircraft maker earned 88 cents, missing the consensus estimate of $1.22 per share.

Results were hurt by a previously announced delay of a surveillance plane the company is building for Australia's military.

The delay is "an embarrassment" for the company, said Howard Rubel, analyst at Jefferies, to CNBC. "Boeing needs to do a better job of hitting its milestones."

Boeing reaffirmed its full-year guidance of $5.70 to $5.85 per share and said 2009 earnings would be between $6.80 and $7 per share. Wall Street has been looking for $5.91 for 2008 and $6.95 for 2009.

Shares fell 3.7% to $66.72 ; the stock was the laggard among the 30 Dow stocks.

Yahoo shares fall on profit drop

Yahoo (YHOO, news, msgs) shares fell 4.7% to $20.39 after the company reported an 18% drop in quarterly net income late Tuesday.

The company said it earned $131.2 million, or 9 cents per share, down from the $160.6 million, or 11 cents per share, in the same period last year. Chief Financial Officer Blake Jorgensen blamed "a difficult economic environment."

• Video: See the latest videos on Yahoo

It was a tough quarter for Yahoo in more ways than one. First the Internet giant battled with Microsoft, resisting a takeover bid. Then it compromised with billionaire investor Carl Icahn -- who supports selling the company -- by giving Icahn three seats on its board.

Earnings missed the consensus estimate by a penny, but at least one analyst was relieved that things weren't worse.

"We knew they were going to miss, but it's not as bad as we feared. Their business is hanging in there, but it's still all about Microsoft," Gene Munster, analyst at Piper Jaffray, told The Wall Street Journal.

The stock is still down 14% over the past year and 18% since June 12, when Microsoft said it would no longer pursue an acquisition of the company.

Microsoft's Johnson to move to Juniper

Kevin Johnson, who was the lead executive in charge of Microsoft's bid to buy Yahoo, is leaving the company to run Juniper Networks (JNPR, news, msgs), The Wall Street Journal reported late today.

Johnson, who had been at Microsoft since 1992, was president of the company's division that includes Windows, Windows Live operations and Microsoft's online business.

The change comes in the wake of Microsoft's failed attempts to buy and then forge a partnership with Yahoo this year.

Microsoft said it plans to divide Johnson's job into two pieces. CEO Steve Ballmer will head the Windows Live business with its top three executive reporting directly to him. The company will search for a new leader for the online business.

Microsoft was up slightly to $26.59 in after-hours trading. The stock had risen 2.4% to $26.43 in regular trading. Juniper was up 1.7% to $23.28. It had been up 2.4% to $22.89 in regular hours.

Short hits from the markets -- 4 p.m.

	Wed.	Tues.	Chg.	Month chg.	YTD chg.
Treasurys
13-week Treasury bill	1.545%	1.500%	0.045	-9.38%	-50.80%
5-year Treasury note yield	3.535%	3.449%	0.086	5.81%	2.32%
10-year Treasury note yield	4.148%	4.097%	0.051	4.25%	2.80%
30-year Treasury bond yield	4.700%	4.663%	0.037	3.73%	5.40%
Currencies
U.S. Dollar Index	73.040	72.675	0.365	0.33%	-4.77%
British pound in dollars	$1.9976	$1.9916	0.0060	0.22%	0.42%
Dollar in British pounds	£0.5006	£0.5021	-0.0015	-0.22%	-0.42%
Euro in dollars	$1.5699	$1.5798	-0.0099	-0.33%	7.41%
Dollar in euros	€ 0.6370	€ 0.6330	0.0040	0.33%	-6.90%
Dollar in yen	107.83	107.28	0.55	1.54%	-3.59%
Canadian dollar in U.S. dollars	$0.991	$0.993	-$0.0016	1.18%	-0.15%
U.S. dollar in Canadian dollars	$1.009	$1.007	$0.0016	-1.22%	0.08%
Commodities
Gold	$922.80	$948.50	-$25.70	-0.59%	10.12%
Copper	$3.6575	$3.6905	-$0.03	-5.80%	20.27%
Silver	$17.4580	$18.0050	-$0.55	-0.30%	17.01%
Corn	$5.7150	$5.7350	-$0.02	-21.15%	25.47%
Crude oil (NYMEX) (per barrel)	$124.44	$128.42	-$3.98	-11.11%	29.65%