Economic fears slam stocks
Stock prices skidded Thursday as investors grappled with concerns about the strength of consumer spending and the overall economy after downbeat comments from J.C. Penney and Wells Fargo.
Treasury bond yields tumbled as the economic fears prompted investors to seek the relative safety of government securities.
Retailing stocks slumped after J.C. Penney slashed its earnings forecast for the current quarter, including the holiday shopping season. The retailer, blaming the housing downturn and high fuel prices, said sales “weakened dramatically” in September and October.
“The assumption is the consumer has given up,” said Charlie Smith, chief investment officer at Fort Pitt Capital Group in Pittsburgh. “Three-dollar to $3.20-a-gallon gas and house prices falling at 5% a year is really a double whammy the consumer can’t overcome.”
Meanwhile, financial stocks suffered after Wells Fargo Chief Executive John Stumpf, calling the housing market’s decline the worst since the Great Depression, said the bank’s losses on home equity lines of credit were likely to increase in the fourth quarter and remain “elevated” through 2008.
The Dow Jones industrial average fell 120.96 points, or 0.9%, to 13,110.05. The Standard & Poor’s 500 index dropped 19.43 points, or 1.3%, to 1,451.15. The Nasdaq composite index lost 25.81 points, or 1%, to 2,618.51.
The Russell 2000 index of smaller companies stumbled 10.87 points, or 1.4%, to 771.60.
The yield on the 10-year Treasury note sank to 4.14% from 4.25% late Wednesday.
Oil prices slipped after U.S. inventories of crude rose more than expected last week. Crude futures dropped 66 cents to $93.43 in New York.
Gold prices fell back below $800, losing $27.10 to close at $785.90. The dollar was mixed against other major currencies.
Shares of Wells Fargo fell $1.28, or 3.9%, to $31.97 on the comments by the company’s CEO. The bank has boosted its loss provisions in recent quarters to cover increasing defaults on mortgages and home equity products, but it has avoided big write-downs that other banks have faced because it has little exposure to complex mortgage-linked financial instruments that have soured.
Citigroup, which has plenty of such exposure, dropped $1.46, or 4.1%, to $34.58 on a report that it might have to write down its mortgage-related portfolio in the fourth quarter by more than the $8 billion to $11 billion the company has estimated.
British bank Barclays fell 88 cents, or 2%, to $43 after its Barclays Capital unit took a $2.7-billion charge on losses tied to turbulent credit markets.
Fannie Mae sank $4.78, or 10%, to $43.04 after Fortune magazine suggested that the company’s latest earnings release had downplayed credit losses. Late Thursday the government-chartered mortgage-finance giant said it would hold a conference call this morning so investors and analysts could “ask technical accounting questions” about recent earnings reports. Fannie Mae’s rival, Freddie Mac, dropped $2.33, or 5.3%, to $41.86.
“The story about Fannie Mae just killed the market,” said Michael Nasto, trader at U.S. Global Investors Inc. in San Antonio. “It doesn’t seem like anyone can get their arms around just how big the sub-prime mess is.”
Financial stocks were also hurt by a federal judge’s denial in Cleveland of a bid by Deutsche Bank to foreclose on 14 properties. The judge said the bank hadn’t proved that investors in mortgage securities actually owned the underlying home loans. The ruling, if adopted by other federal courts, could complicate efforts to foreclose on loans in default.
Among other financial companies, Lehman Bros. fell $2.48, or 3.8%, to $62.97, and Calabasas-based Countrywide Financial, the biggest U.S. home loan firm, dropped $1.16, or 8.7%, to a five-year low of $12.21.
NovaStar Financial plunged $2.51, or 55%, to $2.08. The former sub-prime lender posted a wider quarterly loss and said it didn’t plan to reenter mortgage banking until the market improved.
In the retailing sector, J.C. Penney slumped $2.40, or 5.1%, to $44.33. The company expects fiscal fourth-quarter profit of $1.65 to $1.80 a share, down from a previous forecast of $2.41.
Department store chain Dillard’s lost 75 cents, or 3.9%, to $18.28. Nordstrom dropped $1.01, or 2.9%, to $33.50.
In other market highlights:
* Energy stocks lost ground as oil prices fell. Exxon Mobil slid $1.82, or 2.1%, to $84.49. ConocoPhillips fell $1.33, or 1.7%, to $78.04.
* Ralcorp Holdings, a maker of private-label cereals, agreed to buy Kraft Food’s Post cereal division for $1.65 billion. Ralcorp surged $5.77, or 10%, to $61.24. Kraft fell 61 cents, or 1.9%, to $32.37.
* Overseas, key stock indexes slumped 1.4% in Hong Kong, 0.7% in Japan, 1.5% in Germany, 0.9% in France and 1.1% in Britain.
