Stocks dive on financial fears; S&P 500 now in bear’s den
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For the stock market, it was one day out of the frying pan -- the next day into the fire. Again.
Share prices followed Tuesday’s rebound with a steep plunge today, as fears about the financial system again gripped Wall Street. Iran’s latest missile test didn’t help the mood.
The sell-off pulled the Standard & Poor’s 500 index into bear-market territory for the first time since the 2000-02 dive. It joins many other indexes that have been dragged into the bear cave in recent weeks.
The S&P 500 tumbled 29.01 points, or 2.3%, to 1,244.69, leaving it down 20.5% from its record closing high of 1,565.15 reached in October. A drop of at least 20% is Wall Street’s usual threshold for a bear market.
‘It’s a pretty ugly picture,’ said Brian Gendreau, investment strategist at ING Investment Management in New York. ‘It’s very hard to point to a catalyst for getting back into’ stocks.
Unless losing nearly 24% of your capital in a day is your idea of fun. That’s what happened to investors in mortgage giant Freddie Mac today.
Despite attempts by federal officials to dispel concerns about the financial health of Freddie and its sister company, Fannie Mae, the market clearly isn’t buying it: Freddie plummeted $3.20, or 23.8%, to $10.26. Fannie slid $2.31, or 13.1%, to $15.31.
Wall Street was unnerved by another sign that investors are becoming less willing to extend credit to Freddie and Fannie, despite the implied government guarantee of their debt: Fannie Mae issued $3 billion in two-year notes today at an annualized yield of 3.27%, far above the 2.37% that the U.S. Treasury pays on two-year notes.
In theory, Fannie shouldn’t be paying this much on its debt -- if investors believed it was truly a solid credit.
And if there are doubts about Fannie and Freddie, that doesn’t bode well for financial giants that aren’t technically backed by the Treasury. Merrill Lynch sank $3.03, or 9.2%, to $29.74, its lowest since 2002.
What was bad for financials was bad for the rest of the market, as usual. Among the 10 major industry sectors in the S&P 500, only utilities were up for the day. In the tech sector, Cisco Systems crumbled $1.30, or 5.7%, to $21.58 after CEO John Chambers suggested his customers don’t expect an economic recovery until 2009.
With forecasts like that, ‘You have to keep asking, ‘Why would you want to buy stocks right now?’ ‘ said Dan McMahon, veteran trader at Raymond James & Associates.
Among major market indexes, the Dow industrials and the Nasdaq composite fell further into bear-market territory. The Dow slid 236.77 points, or 2.1%, to 11,147.44, the lowest close since August 2006; the Nasdaq gave up 59.55 points, or 2.6%, to 2,234.89.
The Dow now is down 21.3% from its record high in October.
Crude oil prices pulled back today after an initial jump, and finished up just 1 cent at $136.05 a barrel, following two days of heavy losses. But nobody seemed to be paying much attention to oil after financial-company jitters revived. If the financial system unravels, the cost of gas at the pump may be among the least of our problems.