U.S. Stocks Slide As Financials Woes Return
NEW YORK (MarketWatch) -- Stock fell sharply Monday, as the financial sector deepened its slide amid reports of more losses at Lehman Brothers and of a bail-out for mortgage giants Fannie Mae and Freddie Mac.
"It's all about the financial sector again and these problems resurfacing," said Peter Cardillo, chief market economist at Avalon Partners. "The market is wondering what is going to happen if the government really has to step in and bail out Freddie Mac and Fannie Mae."
The Dow Jones Industrial Average was recently down 194 points, or 1.7%, at 11,465, with all of its 30 components falling. The benchmark index was pulled lower by AIG , off 5.7%, Citigroup , down 4.3%, and General Motors Corp. , off 5.4%.
The Dow's other financial stocks -- American Express , Bank of America , Citigroup and J.P. Morgan Chase -- each lost more than 3%.
Newsweekly Barron's said it is growing more likely that the U.S. government will recapitalize Fannie Mae and Freddie Mac , wiping out investors who still hold shares in the mortgage giants.
Both Fannie and Freddie each lost more than 18%.
Separately, Lehman Brothers lost 5% after The Wall Street Journal said it could lose $1.8 billion during the quarter.
The steep losses in financials also came on the heels of some gains in the sector Friday. The temporary bump came as bond insurers Ambac Financial Group and MBIA Inc. had their credit ratings affirmed and as crude-oil futures continued their decline.
After posting gains since the middle of July and so far in August, the market seems unable to get past the continued fall-out of bad home loans that have led to a global credit crisis and mountains of losses for financial firms.
"We believe that a sustained uptrend in stocks will require additional good news from both the credit and energy markets," said Bob Doll, chairman of BlackRock, in his weekly investment letter.
S&P, Nasdaq push lower
The S&P 500 index lost 20 points to 1,278, while the Nasdaq Composite dipped 42 points to 2,409.
Trading volumes showed 643 million shares exchanging hands on the New York Stock Exchange and 468 million trading on the Nasdaq stock market. Advancing issues topped decliners by 22 to 8 on the NYSE and by 19 to 7 on Nasdaq.
Financials led the way down on the S&P 500, with the sector losing 2.6%, followed by consumer discretionary, off 1.8%, and information technology, down 1.6%.
The energy sector also lost earlier gains, tracking crude-oil prices, as the threat of Tropical Storm Fay hitting oil installations in the Gulf of Mexico faded and while concerns of lower demand returned.
September crude closed 90 cents lower at $112.87 a barrel on the New York Mercantile Exchange retreating from an earlier high above $115.
In the technology sector, shares of Electronic Arts Inc. lost 1.8% after the video-game maker said it is letting its current tender offer for Take-Two Interactive expire on Monday and that the company has to re-evaluate its bid.
The U.S. dollar was mostly lower after strong gains in the past couple of weeks and ahead of the latest data on housing Monday and inflation data due Tuesday.
Mining bucks the trend
Mining giant BHP Billiton said Monday it earned more than $15 billion in the year ended June 30 and that the impact of weakness from developed markets has been "minimal." Net profit for the period climbed 15% to $15.39 billion.
Shares in the group rose 0.3%, with other mining stocks also climbing.
In political news, Pakistan's President Pervez Musharraf said Monday that he will step down as the nation's leader amid a growing threat of impeachment.
Separately, in the financial sector, Mitsubishi UFJ Financial said it has sweetened a bid to acquired the 34.6% stake it doesn't hold in UnionBanCal Corp. to $3.5 billion from $3.0 billion and that the California-based lender hs accepted it.
Shares in Hershey Co. fell 10% after the group lowered its 2008 earnings outlook late Friday and said it would raise wholesale prices by around 11% to offset higher costs.
Among other companies in focus, Lowe's reported a 4.5% drop in its earnings per share to 64 cents but still topped the consensus forecast of 56 cents, with sales also beating expectations.
By Nick Godt