Stocks retreat on debt news
Stocks pulled back sharply Monday as news that major U.S. banks would set up a fund to bolster the credit markets stirred concerns about bad debt and as oil prices topped $86 a barrel for the first time. The Dow Jones industrial average lost more than 100 points.
The pullback came as investors awaited third-quarter earnings reports due this week from more than 80 components of the Standard & Poor’s 500 index.
Concerns about banking arose Monday after Citigroup, the biggest U.S. bank, reported that its third-quarter results fell 57%. The company said it recorded more than $3 billion in losses on mortgage-backed securities, leveraged debt and fixed-income trading.
The bank, along with JPMorgan Chase and Bank of America, announced the creation of a fund used to help revive the asset-backed commercial paper market.
The fund will buy assets from structured investment vehicles, which buy corporate bonds and sub-prime mortgage debt. The plan was orchestrated by the Treasury Department to avoid a fire sale in the market.
“It’s a reminder that this problem never was entirely put to bed. There may be financial institutions out there that are in more trouble than we thought they were,” said Aaron Gurwitz, co-head of portfolio strategy at Lehman Bros. Investment Management, referring to concerns about bad debt.
The Dow fell 108.28 points, or 0.8%, to 13,984.80.
Broader stock indicators also declined. The S&P; 500 index fell 13.09 points, or 0.8%, to 1,548.71, and the Nasdaq composite index fell 25.63 points, or 0.9%, to 2,780.05.
The Russell 2,000 index of smaller companies slumped 11.81 points, or 1.4%, to 829.36.
Declining issues outnumbered advancers by about 8 to 3 on the New York Stock Exchange.
Bond yields rose after a better-than-expected economic reading for the New York region, but then retreated. The yield on the benchmark 10-year Treasury note finished at 4.68%, unchanged from late Friday. The dollar fell against most other major currencies, while gold prices rose.
Oil prices surged after the Organization of the Petroleum Exporting Countries said production of crude by non-OPEC countries was probably falling despite rising demand. Crude futures settled up $2.44 at $86.13 a barrel on the New York Mercantile Exchange.
Investors are keeping tabs on corporate and economic data as they try to determine how well profits will fare.
“All those guys are tempering their expectations because the economy is slowing,” said Thomas Nyheim, vice president and portfolio manager at Christiana Bank & Trust Co., referring to Wall Street’s expectation of moderate growth in third-quarter profits.
The concerns over soured loans drew comments from Treasury Secretary Henry Paulson, who said in a speech Monday that the troubles with structured investment vehicles might require regulators to step in to stave off future problems.
Wall Street’s unease Monday followed a period of calm after worries about credit roiled markets around the world over the summer. During August and into September, investors were concerned that troubles with sub-prime mortgages that had been bundled together and sold as investments would resurface and cause widespread losses. Indeed, some hedge funds and other investment vehicles worldwide that held sub-prime debt succumbed to the soured loans. It wasn’t until the Federal Reserve stepped in with aggressive interest-rate cuts that the credit markets began to show signs of recovery.
In other market highlights:
Citigroup fell $1.63, or 3.4%, to $46.24 after the bank raised its loan-loss provisions by $2.24 billion -- a higher amount than it estimated a week ago -- amid expectations of further deterioration in consumer credit. The bank also said it would delay repurchases of its shares.
Medtronic tumbled $6.33, or 11%, to $50. The company said it was halting distribution of wires that connect some of its defibrillators to patients’ hearts after learning that they might have contributed to five deaths.
Biogen Idec jumped $13.08, or 19%, to $82.51 after the company said it might sell itself and has drawn interest from potential buyers.
SLM dropped $2.54 to $45.91. An investor group that seeks to walk way from a $25-billion buyout of the student lender, better known as Sallie Mae, told a Delaware court it should not have to pay a $900-million breakup fee stipulated in the buyout agreement.
Boeing lost $1.86 to $94.83 after Sanford C. Bernstein & Co. downgraded the aircraft manufacturer to “market perform” from “outperform,” citing the potential for further disappointment on the 787 Dreamliner. Boeing last week postponed delivery of the plane by six months because of part shortages and assembly delays.
Children’s Place Retail Stores rose 81 cents $24.73. Ezra Dabah, the former chief executive and a current director of the retailer, is considering making a bid for the company, according to an SEC filing.
Overseas, key stock indexes fell 1.3% in Britain, 0.9% in Germany and 0.6% in France. Shares rose 0.2% in Japan.
