Stocks fall as key officials’ comments worry investors
Share prices fell Monday for the first time in five sessions as remarks by two Federal Reserve officials added to worries that the country’s economic expansion would slow in the face of a continuing sub-prime mortgage crisis.
Financial stocks led the decline after the Dow Jones industrial average last week rose nearly 391 points, or 3%, marking its biggest weekly point gain in more than four years.
Saying financial conditions had deteriorated more than she expected, Janet L. Yellen, president of the Federal Reserve Bank of San Francisco, labeled growth in the final three months of the year as “very meager” and warned that housing problems could “spill over” into consumer spending. And Boston Fed President Eric S. Rosengren said growth would slow for two quarters to “well below” its long-term pace.
The market appeared unsure about an effort encouraged by the Bush administration to stave off home foreclosures. Treasury Secretary Henry M. Paulson Jr. said the government was moving closer to an agreement with the mortgage industry to help thousands of homeowners avoid foreclosures by temporarily freezing their interest rates.
Investors also considered a report from the Institute for Supply Management that suggested that the pace of manufacturing growth slowed in November, but the reading was no worse than analysts expected.
“I think what we’ve got is a market that’s trying to sort out whether we’re seeing a big shift in the economic and investment fundamentals here or whether we’re just going to continue to slog along,” said Lincoln Anderson, investment chief at LPL Financial Services in Boston.
Also helping to depress share prices was a reduction by Citigroup of its profit estimate for General Electric, whose shares slid $1.36, or 3.6%, to $36.93.
The Dow index fell 57.15 points, or 0.4%, to 13,314.57. The Standard & Poor’s 500 dropped 8.72 points, or 0.6%, to 1,472.42, and the Nasdaq composite fell 23.83 points, or 0.9%, to 2,637.13.
The Russell 2,000 index of smaller companies fell 7.8 points, or 1%, to 759.97.
Declining issues outpaced advancers by 4 to 3 on the New York Stock Exchange.
Signaling continued nervousness about the health of the U.S. financial system, investors again rushed into Treasury securities, driving yields down. The two-year T-note yield fell to 2.86%, down from 3.01% on Friday and the lowest since late 2004.
The benchmark 10-year T-note yield ended at 3.86%, down from 3.94% on Friday and near its multiyear low of 3.84% reached Nov. 26.
In the interest-rate futures market, traders increased wagers that the Fed would lower its key rate next week. The dollar fell against other major currencies, and gold rallied.
Oil prices rose. Crude futures gained 60 cents to $89.31 a barrel in New York.
Financial shares lost 1.2% after Deutsche Bank said bond losses would continue to hurt brokerage profits and analysts at Barclays and UBS said Paulson’s rate-freeze plan might do little to boost mortgage bonds.
Citigroup slipped 24 cents to $33.06, Bank of America fell 66 cents to $45.47, Merrill Lynch slid 88 cents to $59.06 and Lehman Bros. lost $1.25 to $61.38.
E-Trade Financial sank 49 cents, or 11%, to $4.11. A Banc of America Securities analyst downgraded the online brokerage to “sell.” The stock is down 82% this year in the wake of losses on mortgage-related debt in its bank unit.
Home builders rallied, marking their biggest two-day advance since August, on Paulson’s remarks. Lennar jumped 90 cents, or 5.7%, to $16.74. D.R. Horton surged 37 cents, or 3.1%, to $12.34. KB Home rose 23 cents, or 1.1%, to $20.66.
In other market highlights:
Activision jumped $2.82, or 13%, to $24.97 after Vivendi said it would acquire a controlling stake in the video game maker and combine it with Vivendi’s game unit. Rival Electronic Arts fell $1.06 to $55.13.
General Motors fell $1.22 to $28.61 after the automaker said sales dropped 11% last month.
Perris-based National RV Holdings slid 4 cents, or 29%, to 10 cents a share. The maker of Tradewinds and Surf Side recreational vehicles filed for bankruptcy protection Friday after sales dived in recent quarters. Among other RV makers, Winnebago Industries slid $1.04 to $20.48 and Thor Industries fell $1.23 to $34.02.
DreamWorks Animation slumped $1.30 to a 52-week low of $25. Analyst Richard Greenfield at Pali Research cut earnings estimates for the Glendale-based studio for the next three years, citing lower-than-expected sales of “Shrek the Third” DVDs and a weaker-than-expected box-office take for “Bee Movie.”
Research in Motion tumbled $9.07, or 8%, to $104.75. An analyst downgraded the BlackBerry maker and said a slowing economy could hurt the launch of the company’s 9000 series. Its shares are still up 146% this year.
United Online plunged $2.32, or 15.4%, to $12.72, the fourth straight decline for the Woodland Hills-based Internet service provider. Some investors may be growing nervous about the company’s planned initial public offering of its Classmates Media social networking unit. Classmates is expected next week to sell 12 million shares at $10 to $12 each.
Key stock indexes rose 0.3% in Japan and 0.1% in Hong Kong. Share prices fell 0.7% in Britain, 0.4% in Germany and 0.7% in France.
