Stocks tumble after warning on housing
Former Federal Reserve Chairman Alan Greenspan helped send the stock market reeling in the last half-hour of trading Thursday, after he warned on television that the U.S. was living through a “once in a century” crisis tied to the housing market’s plunge.
The Dow Jones industrials lost more than 200 points.
Greenspan, in an interview on CNBC, said falling home prices were “nowhere near the bottom.” He also expressed support for the idea of nationalizing mortgage giants Fannie Mae and Freddie Mac, saying they were a “major accident waiting to happen.”
Note, though, that this is the same Fed chairman who on June 13 said “the worst is over in the financial crisis or will be very soon.” Anyone who took that as a sign to buy bank stocks hasn’t done too well.
Greenspan has, at least, been consistent on the home-price issue. On May 8 he said the housing crisis would go on “at least until the end of the year, if not [into] next year, before it gets rectified.”
When his latest comment about housing prices crossed the tape at 12:19 p.m. PDT Thursday, the Dow Jones industrial average was off about 106 points. At the closing bell 41 minutes later, the Dow was down 205.67 points, or 1.8%, to 11,378.02.
The broader Standard & Poor’s 500 index fell 16.88 points, or 1.3%, to 1,267.38, while the Nasdaq composite index fell 4.17 points, or 0.2%, to 2,325.55.
Fannie Mae slid 71 cents, or 5.8%, to $11.50; Freddie Mac lost 56 cents, or 6.4%, to $8.17. Both mortgage finance giants had been in positive territory earlier in the session.
The Dow, however, was in the red the entire session, after the latest economic data deepened concerns that the U.S. might not be able to avoid recession. (Greenspan opined that the odds of an official recession were “50-50.”)
Still, the Dow managed to eke out a 0.2% rise in July, only its second monthly increase since November. The S&P; 500 index, which fell 1.3% Thursday, was off 1% for the month while Nasdaq was up 1.4%.
July was certainly better than June, when the Dow sank 10%, the S&P; fell 8.6% and Nasdaq lost 9.1%.
In other market highlights:
Walt Disney fell $1.32, or 4.2%, to $30.35 after it reported a slowdown in U.S. advertising.
Motorola jumped 96 cents, or 13%, to $8.64 after it posted a surprise second-quarter profit, citing an increase in cellphone shipments.
ImClone Systems soared $17.49, or 38%, to $63.93 after Bristol-Myers Squibb offered to buy the cancer-drug maker for $60 a share, or $4.5 billion.
Biogen Idec and Elan plunged in after-hours trading after they reported two cases of a brain disease in patients treated with their multiple sclerosis drug Tysabri. Biogen fell 22% to $54.26. Elan sank 42% to $11.55.
Yields on government bonds fell. The 10-year Treasury note tumbled to 3.95% from 4.05% late Wednesday.
Oil futures fell $2.69 to $124.08 a barrel after jumping more than $4.50 on Wednesday.
The Associated Press was used in compiling this report.