Financials weigh on stocks
Stock prices dropped Tuesday, led again by shares of financial companies, as concern persisted that fallout from the slumping housing market could generate more banking losses and pull the economy into recession.
Retreating oil prices, signs of strength in industries outside the financial sector and growing expectations of an aggressive interest rate cut next week could not keep the stock market from declining for a second straight day.
JPMorgan analysts lowered earnings estimates for some of Wall Street’s biggest players, pulling down their stocks as well as shares of other financial firms.
Banks and other financial issues in the Standard & Poor’s 500 index have tumbled 19% as a group this year
“What we’ve had really is a hysterical exit from the financial stocks,” said Michael Metz, the New York-based chief investment strategist at Oppenheimer Holdings Inc., which manages about $60 billion in assets. “I think they still go lower.”
The Dow Jones industrial average fell 65.84 points, or 0.5%, to 13,248.73.
Broader stock indicators also dropped. The Standard & Poor’s 500 index dropped 9.63 points, or 0.7%, to 1,462.79, and the Nasdaq composite index slid 17.30, or 0.7%, to 2,619.83.
The Russell 2,000 index of smaller companies fell 7.91, or 1%, to 752.06.
Declining issues outnumbered advancers by about 7 to 4 on the New York Stock Exchange.
Oil prices fell on speculation that the Organization of the Petroleum Exporting Countries would raise production targets today and on a U.S. intelligence report concluding that Iran halted its nuclear weapons program in 2003.
Crude futures slid 99 cents to $88.32 a barrel on the New York Mercantile Exchange.
Treasury yields rose, reversing some of their recent sharp declines, but they remained depressed as expectations increased for an interest rate cut Tuesday. The yield on the benchmark 10-year Treasury note rose to 3.9% from 3.86% on Monday. The dollar fell against other major currencies, while gold prices rose.
Most Wall Street investors expect the Federal Reserve to further reduce its key short-term interest rate, which stands at 4.5%. Futures traders betting on the Fed’s next move Tuesday were pricing in a 100% chance of at least a quarter-of-a-point cut, and a more than 60% chance of a half-of-a-point cut.
Despite the increasing anticipation of strong action by the Fed, financial stocks tumbled after JPMorgan analysts led by Kenneth Worthington wrote that slumping credit markets would reduce earnings at Goldman Sachs Group, Lehman Bros. Holdings, Merrill Lynch and Morgan Stanley. The firms may also have to further write down their debt holdings, Worthington warned.
Also hurting the financial sector was a downgrade by Punk Ziegel & Co. of shares of Bear Stearns, Goldman and Lehman to “sell” from “market perform,” as well as a pared-down forecast by UBS of earnings at Citigroup. Also, Fitch Ratings lowered by 12 levels, to CCC, its rating on $867 million of mortgage-related debt issued by a so-called structured investment vehicle managed by Citigroup.
And Moody’s Investors Service downgraded a batch of asset-backed securities issued by Bear Stearns.
Goldman sank $11.67, or 5.1%, to $215.22; Bear Stearns tumbled $4.79, or 4.9%, to $93.61; Morgan Stanley dropped $2.27, or 4.3%, to $50.01; Merrill slipped $1.93, or 3.3%, to $57.13; and Lehman fell $1.77, or 2.9%, to $59.61.
Citigroup, the biggest U.S. bank, retreated 51 cents to $32.55. The stock is down 42% this year, more than any other Dow component.
In other market highlights:
* Auto stocks fell for a second day after General Motors posted weak November sales data and said it was slashing production. GM was the biggest loser among the Dow’s 30 stocks, falling 93 cents, or 3.3%, to $27.68.
* Sanderson Farms surged $2.18, or 7%, to $33.16. Higher chicken prices more than doubled the poultry producer’s fiscal fourth-quarter profit.
* Phillips-Van Heusen tumbled $5.65, or 13%, to $37.64. The apparel maker forecast fourth-quarter and 2008 profit below Wall Street expectations, citing economic weakness.
* Jamba jumped 31 cents, or 9.1%, to $3.70 after the San Francisco-based juice maker said it would develop with Nestle’s U.S. division a line of ready-to-drink beverages, including vitamin-fortified juices and smoothies.
* Nokia fell $1.32, or 3.3%, to $38.92. The world’s largest mobile phone maker released operating profit margin targets that disappointed investors. But the company predicted the global market for mobile devices would grow 10% in 2008 and that its share would increase.
* U.S.-traded shares of Baidu.com jumped as much as 4.1% after Nasdaq said the Beijing-based Internet search firm would become the first Chinese company to be included in the Nasdaq 100 stock index. The shares closed at $387.72, up $2.47, after trading as high as $400.99.
* Overseas, key stock indexes fell 1% in Japan, 1.1% in Britain, 0.4% in Germany and 1.5% in France. Shares rose 0.8% in Hong Kong.
