It’s no bull: S&P; 500 in bear turf
For the stock market, it was one day out of the frying pan -- and the next day into the fire. Again.
Share prices followed Tuesday’s rebound with a steep plunge Wednesday, as fears about the financial system once more gripped Wall Street. A missile test by Iran didn’t help the mood. The Dow Jones industrials lost more than 230 points.
The sell-off pulled the Standard & Poor’s 500 index into bear-market territory for the first time since its 2000-02 dive. The broad market gauge, which sank 2.3%, joined many other indexes that had been dragged into the bear cave in recent weeks.
“It’s a pretty ugly picture,” said Brian Gendreau, investment strategist at ING Investment Management in New York. “It’s very hard to point to a catalyst for getting back into” stocks.
The picture was especially ugly Wednesday for investors in mortgage giant Freddie Mac, whose shares plummeted $3.20, or 24%, to $10.26.
The market clearly wasn’t swayed by the efforts of federal officials over the last two days to dispel concerns about the financial health of Freddie and its sister government-sponsored company, Fannie Mae, whose stock slid $2.31, or 13%, to $15.31.
The concern about Fannie and Freddie grew in reaction to a fresh sign that investors are becoming less willing to extend credit to the home-loan buyers despite the implied government guarantee of their debt: Fannie Mae issued $3 billion in two-year notes Wednesday at an annualized yield of 3.27%, far above the 2.39% that the U.S. Treasury pays on two-year notes.
In theory, if investors believed Fannie was truly creditworthy, it shouldn’t have to pay that much more than the Treasury does.
And if there are doubts about Fannie and Freddie, that doesn’t bode well for financial giants that aren’t technically backed by the Treasury.
An index of financial stocks in the S&P; 500 tumbled 5.2% Wednesday. Merrill Lynch sank $3.03, or 9.2%, to $29.74, its lowest since 2002. Bank of America slid $1.48, or 6.3%, to $22.06. Citigroup lost 95 cents, or 5.5%, to $16.44.
Wachovia fell $1.25, or 8%, to $14.29 after a Merrill Lynch analyst said it could record $18 billion in home-loan losses over four years. But the stock rebounded 2.9% to $14.70 in after-hours trading after the company named Treasury Undersecretary Robert K. Steel to be its chief executive.
What was bad for financials was bad for the rest of the market. Among the 10 major industry sectors in the S&P; 500, only utilities were up for the day. In the tech sector, Cisco Systems crumbled $1.30, or 5.7%, to $21.58 after CEO John Chambers suggested his customers didn’t expect an economic recovery until 2009.
With forecasts like that, “You have to keep asking, ‘Why would you want to buy stocks right now?’ ” said Dan McMahon, veteran trader at Raymond James & Associates.
Among major market indexes, the Dow and the Nasdaq composite fell further into bear-market territory. The Dow slid 236.77 points, or 2.1%, to 11,147.44, its lowest close since August 2006; the Nasdaq gave up 59.55 points, or 2.6%, to 2,234.89.
The Dow is down 21.3% from its record high in October. A drop of at least 20% is Wall Street’s usual threshold for a bear market.
The S&P; 500 tumbled 29.01 points to 1,244.69, leaving it down 20.5% from its record closing high of 1,565.15 reached in October.
Crude oil prices pulled back Wednesday after an initial jump, and finished up just 1 cent at $136.05 a barrel, following two days of heavy losses. But nobody seemed to be paying much attention to oil after financial-company jitters revived. If the financial system unravels, the cost of gas at the pump may take a back seat to other economic problems.
In other market highlights:
* Declining issues outnumbered advancers by about 2 to 1 on the New York Stock Exchange.
* The Russell 2,000 index of smaller-company stocks fell 18.97 points, or 2.8%, to 663.75.
* Yields on government bonds slid along with stocks. The yield on the benchmark 10-year Treasury note fell to 3.81% from 3.88% late Tuesday. The dollar fell against other major currencies. Gold prices rose.
* Northwest Airlines nose-dived $1.17, or 16%, to $6.30. The carrier said it would cut 2,500 jobs, about 8% of its workforce, and begin charging $15 to check a single piece of luggage in an attempt to offset high oil prices.
* Struggling Pasadena-based lender IndyMac Bancorp continued its descent, falling 6 cents to 38 cents a share.
* Corona-based Hansen Natural slid $4.39, or 15%, to $24.56, after analysts said executives at the maker of Monster energy drinks had signaled slowing growth and rising competition.
* Overseas, key stock indexes rose 0.1% in Japan, 1.6% in Britain, 1.3% in Germany and 1.5% in France.
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Times wire services were used in compiling this report.
