Energy, financials lead stock plunge
Wall Street suffered a broad-based rout Friday, taking key stock indexes back to where they were before the Federal Reserve’s Sept. 18 interest rate cut.
Fresh concerns about the economy’s health sent all 10 major industry groups in the Standard & Poor’s 500 lower, with 481 of the index’s issues declining.
The S&P; index sank 39.45 points, or 2.6%, to 1,500.63. The Dow Jones industrials lost 366.94 points, or 2.6%, to 13,522.02. The Nasdaq composite index slid 74.15, or 2.7%, to 2,725.16.
More than five stocks fell for every one that gained on the New York Stock Exchange.
“Today was a market explosion,” said Frederic Dickson, chief market strategist at D.A. Davidson & Co., which manages $23 billion in Lake Oswego, Ore.
Still, the decline was similar in scale to other sharp losses this year and was smaller than the 2.8% dives in the Dow and the S&P; 500 on Aug. 9 as the global credit crunch was beginning to darken investors’ moods.
Trading volume jumped but was far below the levels of mid-August.
Earnings reports from banks, manufacturers and industrial companies heightened concern about the health of financial markets and the economy.
Financial shares tumbled to cap their worst week since 2002 after Wachovia said loan defaults reduced profit.
Treasury bond yields fell for the fifth straight day as investors sought the perceived safety of government debt. The benchmark 10-year Treasury note dropped to 4.39% from 4.49% on Thursday. Yields on two-year Treasury notes slid the most since September 2001. The dollar fell against other major currencies, while gold inched down.
S&P; 500 companies have posted an average profit decline of 0.6% in the third quarter, the first drop since 2002, according to Bloomberg data.
For the week, the S&P; 500 fell 3.9%, the Dow lost 4.1% and the Nasdaq declined 2.9%.
Wachovia slid $1.74, or 3.6%, on Friday to $46.40. The No. 4 U.S. bank missed analysts’ estimates after a record $1.3 billion of write-downs for bad loans and mortgage-backed securities.
Citigroup, the largest U.S. bank, declined $1.47 to $42.36. Bank of America, the second-biggest, fell $1.28 to $47.57. No. 3 JPMorgan fell 88 cents to $45.02.
“Right now financial stocks are like radioactive waste,” said Michael James, senior equity trader at Wedbush Morgan Securities in Los Angeles. “People just do not want to touch them.”
The S&P; 500 Financials index fell 2.9%. It is down 11% this year.
Merrill Lynch tumbled $3.81, or 5.4%, to $66.26. Morgan Stanley slid $3.45, or 5.3%, to $61.95. Goldman Sachs Group fell $10.16, or 4.5%, to $217.69.
Countrywide Financial, the second-worst performer in the S&P; 500 this year, lost $1.28 to $15.23. Warren E. Buffett denied speculation that he bought shares of the mortgage giant or of home builder Hovnanian Enterprises, saying neither stock was undervalued. Hovnanian rose 27 cents to $10.55.
“The market was going into earnings season expecting the best and it discovered the financial area still has a lot of questions, and the other parts of the economy have corporate managements that are a lot less confident about the future,” said Gordon Fowler, chief investment officer at Glenmede Trust Co. in Philadelphia.
Oil futures fell 87 cents to $88.60 a barrel on signs that U.S. supplies are sufficient to meet demand. Earlier in the day, crude rose above $90 a barrel in New York for the first time. The S&P; 500 energy index dropped 4.3%, its steepest tumble in two years, pulled down by Schlumberger and other oil-field service companies.
Schlumberger lost $12.30, or 11%, to $99.32 after the company said third-quarter revenue in North America fell and some projects overseas were delayed because of equipment and labor shortages. Halliburton, the second-largest oil-field contractor, dropped $2.16 to $38.85.
Exxon Mobil lost $2.91 to $92.14. Chevron retreated $3.15 to $89.27.
Honeywell International lost $2.37, or 3.9%, to $58.32. The maker of aircraft controls said demand for some products may wane because of a slowdown in the auto and housing markets.
Caterpillar fell $4.09, or 5.3%, to $73.57. The housing slump will lead to a 12% decline in North American machinery and engine sales this year, Caterpillar said.
“The early reports in the industrial area are coming in weaker than had been expected and, more importantly, companies are not raising” their forecasts, said Bruce McCain, a strategist at Key Private Bank.
3M and SanDisk also plunged after reporting earnings. 3M tumbled $8.11, or 8.6%, to $86.62. SanDisk, the biggest maker of memory chips for digital cameras, dropped $7.60, or 15%, to $42.71.
Traders increased wagers that the Fed will lower its benchmark interest rate to 4.25% by the end of the year after S&P; lowered ratings on about $22 billion of mortgage securities and Cheyne Finance and Rhinebridge, two structured investment vehicles that bought securities backed by home loans, defaulted on more than $7 billion of debt. Such investment vehicles, which sell commercial paper to invest in asset-backed securities, have been forced to sell assets as investors balked at financing their investments.
Friday was the 20th anniversary of “Black Monday,” when an increase in U.S. interest rates and slowing economic growth sparked a panic that sent the Dow down 22.6% in one day.
