Stocks fall in volatile day
Stocks lost more ground Monday in volatile trading in the wake of a cautious economic outlook from a Federal Reserve official and the possibility of more financial troubles for Fannie Mae and Freddie Mac.
Worries about the ailing financial sector deflated an early rally that was fueled by a $4-a-barrel pullback in oil prices.
The financial markets remain fragile, and it will take time for conditions to improve, Janet Yellen, president of the Federal Reserve Bank of San Francisco, said in a speech.
“My expectation is that market functioning will improve markedly by 2009,” she said. “But things could get worse before they get better.”
The comments added to concerns raised by Lehman Bros. analysts that Fannie Mae and Freddie Mac may need to raise more capital as the credit crisis continues.
The market managed, however, to rebound from its lows of the day, when the Dow Jones industrial average sank to its lowest level since August 2006.
“The market is so skittish and so scared that half the people believe that this is just another leg of the down market -- and the other half believes that we’re forming a bottom,” said Frank Ingarra, assistant portfolio manager at Hennessy Funds.
The Dow fell 56.58 points, or 0.5%, to 11,231.96. Over the course of the day, the blue chips rallied, tumbled, rebounded, and then fell once more. The Dow slid as much as 167.80 points to 11,120.74 -- its lowest trading level since Aug. 15, 2006 -- but was also up more than 100 points in early trading.
Broader stock indicators also declined. The Standard & Poor’s 500 index fell 10.59 points, or 0.8%, to 1,252.31, and the Nasdaq composite index fell 2.06 points, or 0.1%, to 2,243.32.
The Russell 2,000 index of smaller companies fell 7.52 points, or 1.1%, to 658.26.
Declining issues outnumbered advancers by more than 2 to 1 on the New York Stock Exchange.
In the commodities market, oil futures fell $3.92 to close at $141.37 a barrel on the New York Mercantile Exchange after being down more than $5 a barrel at times.
Yields on government bonds fell along with stocks. The 10-year Treasury note’s yield fell to 3.90% from 3.98% last Thursday.
The dollar traded mixed against other major currencies, while gold prices fell.
Volatility on Wall Street, as measured by the Chicago Board Options Exchange’s volatility index, on Monday touched its highest point since March, when worries about the financial markets peaked during the buyout of Bear Stearns Cos.
“It indicates that there was more fear entering the market than there had been in previous weeks,” said Todd Salamone, director of trading and vice president of research at Schaeffer’s Investment Research.
Fannie Mae fell $3.04, or 16%, to $15.74, and Freddie Mac fell $2.59, or 18%, to $11.91, after Lehman analysts said new accounting rules could require Fannie to raise $46 billion more capital and Freddie to raise $29 billion.
Citigroup, JPMorgan Chase, and Bank of America, which are due to report earnings this month, also saw their shares slip. Citigroup fell 42 cents, or 2.5%, to $16.40; JPMorgan dropped $1.27, or 3.6%, to $34.04; and Bank of America fell 87 cents, or 3.9% to $21.53.
In other market highlights:
The beaten-down shares of General Motors rose 12 cents to $10.24 on reports that the company was considering cutting more white-collar jobs and getting rid of some brands.
Yahoo rose $2.56, or 12%, to $23.91 after Microsoft expressed support for Carl Icahn’s effort to oust the Web company’s board next month.
Walt Disney fell 82 cents, or 2.7%, to $30.08. A Lehman Bros. analyst downgraded the stock and predicted weak attendance at the company’s theme parks.
APP Pharmaceuticals soared $5.37, or 30%, to $23.19. Germany’s Fresenius is buying the generic drug maker for $23 a share, or $3.7 billion in cash. Billionaire Patrick Soon-Shiong of West L.A. owns 83% of Schaumberg, Ill.-based APP.
Merck sank $1.85, or 4.8%, to $36.60 after a UBS analyst downgraded the pharmaceutical giant, citing slowing sales of its Gardasil drug.
Teva Pharmaceutical Industries tumbled $4.02, or 8.5%, to $43.18 after the company posted disappointing results from a high-dose trial of multiple sclerosis drug Copaxone.
Bankrate slumped $4.12, or 12%, to $28.89. The publisher of financial websites lowered its full-year sales outlook, saying financial-market weakness had hurt advertising.
Overseas, key stock indexes rose 0.9% in Japan, 1.8% in Britain, 2% in Germany and 1.8% in France.
