Bad news takes toll on markets
Stock prices skidded Thursday after the assassination of Pakistani opposition leader Benazir Bhutto raised the possibility of political unrest abroad and new government data exacerbated concerns about the economy.
Financial stocks lost ground after a Goldman Sachs analyst said Citigroup could take nearly $20 billion in fresh write-downs and slash its dividend by 40%.
The major share indexes each lost well over 1%, with the Dow Jones industrial average falling 192 points.
Bhutto’s assassination unsettled investors who had been contending with domestic economic concerns for months. The price of oil advanced on the news, only adding to Wall Street’s uneasiness.
Meanwhile, the Commerce Department said orders for durable goods -- big-ticket items ranging from commercial jetliners to home appliances -- edged up 0.1% last month, much less than the 2.2% increase expected by economists. Still, it was the first rise in such orders in the last four months.
The Labor Department said the number of workers seeking unemployment benefits showed a surprise increase last week. Applications filed for unemployment insurance rose by a seasonally adjusted 1,000 to 349,000. Economists had predicted the figure would fall to around 340,000.
In a bright spot, the Conference Board said its consumer confidence index rose to 88.6 in December from a revised 87.8 in November. It was the first increase since July. Wall Street had expected a slight drop.
“The data came in a bit softer than people were anticipating and then you throw in the situation in Pakistan and that’s led people to rush back into Treasuries,” said Tom Higgins, chief economist at Payden & Rygel Investment Management in Los Angeles.
The Dow fell 192.08 points, or 1.4%, to 13,359.61.
Broader stock indicators also fell. The Standard & Poor’s 500 index declined 21.39 points, or 1.4%, to 1,476.27, and the Nasdaq composite index fell 47.62 points, or 1.7%, to 2,676.79.
The Russell 2,000 index of smaller-company stocks tumbled 23.52 points, or 3%, to 773.51.
Declining issues outnumbered advancers by more than 3 to 1 on the New York Stock Exchange. Volume remained light, which may have exaggerated the market’s decline.
Treasury yields sank as worries about political instability sent investors seeking the relative safety of U.S. government securities. The yield on the 10-year Treasury note fell to 4.2% from 4.28% late Wednesday.
The dollar fell against other major currencies, while gold prices rose.
Crude oil futures rose 65 cents to settle at $96.62 a barrel on the New York Mercantile Exchange. Prices were lifted not only by the Bhutto assassination but also by an Energy Department report of a decline in oil inventories last week that was more than double what was expected.
Despite oil’s rally, an index of energy companies in the S&P; 500 fell from a record high, marking its first drop in seven trading days.
Notwithstanding the developments overseas, Thursday’s decline in the stock market after several sessions of gains reflected investors’ unease over the health of the consumer and the domestic economy in 2008, Higgins said.
“What happens with the U.S. consumer really determines whether we avoid a recession or whether we actually have one,” he said.
Higgins said he expected that economic growth would become sluggish but that the country would skirt a recession.
The financial sector also commanded some of the attention of those who waded into the market Thursday as Goldman Sachs predicted that the flood of write-downs at banks tied to soured mortgages would continue.
Citigroup, one of the 30 stocks that makes up the Dow Jones industrials, slumped 89 cents, or 2.9%, to $29.56 after a Goldman analyst said the New York-based banking giant could write down the value of its debt portfolio by $18.7 billion, much more than the analyst’s previous estimate of as much as $11 billion. Citigroup could also slash its dividend, and might need to raise $5 billion to $10 billion more cash, Goldman said.
Goldman also raised concerns about Merrill Lynch, which fell $1.34, or 2.5%, to $53.20 and JPMorgan Chase, which declined $1.30 to $43.64.
Among other financial issues, American Express posted the steepest decline in the Dow average, losing $1.80, or 3.4%, to $51.10.
Sallie Mae fell $2.48, or 11%, to $19.65 after saying it would sell $2.5 billion in stock and use some of the proceeds to settle contracts requiring the company to buy back stock at prices above current levels.
Shares of the student loan giant, officially known as SLM, fell sharply last week amid concerns about its plans following the collapse of a deal to be acquired in a $25-billion buyout deal.
Fannie Mae and Freddie Mac, the largest U.S. sources of money for home loans, rose after their regulator said they had met their capital requirements in the third quarter. Freddie Mac rose the most in the S&P; 500, climbing $1.28, or 4%, to $33.70. Fannie Mae was the second-biggest gainer, adding 81 cents, or 2.1%, to close at $39.61.
Overseas, key stock indexes rose 0.3% in Britain, 0.4% in Germany and 0.2% in France. Shares fell 0.6% in Japan.
