Market Meltdown - Stocks Fall Sharply Amid Credit Fears
Pastor Dale Morgan
*Market Meltdown - Stocks Fall Sharply Amid Credit Fears*
By TIM PARADIS
AP Business Writer
NEW YORK (AP) -- Wall Street plunged anew Friday, hurtling the Dow Jones
industrial average down more than 280 points after comments from a major
investment bank exacerbated the market's fears of a widening credit crunch.
The drop of more than 2 percent in major stock market indexes was a
fitting end to two volatile weeks on Wall Street and followed
back-to-back, late-day triple digit gains in the Dow. This time, the
catalyst for a sharp skid was Bear Stearns Cos. Chief Financial Officer
Sam Molinaro, who described turmoil in the credit market as the worst
he'd seen in 22 years.
Stocks started the day with a decline after the government said jobs
growth was not as strong as expected last month and a trade group
reported that the nation's service sector grew at a slower pace than
expected in July. Then, credit concerns, which have dogged investors for
months and have roiled markets since last week, further weighed on
investor sentiment; Standard & Poor's Ratings Services lowered its
credit outlook on Bear Stearns to negative from stable because of the
investment bank's exposure to the distressed mortgage and corporate
buyout markets.
"I think there is a tremendous amount of uncertainty with regard to the
credit markets and how the situation will ultimately settle," said Mike
Malone, trading analyst at Cowen & Co.
Investors remain worried that problems in subprime mortgages - those
made to borrowers with poor credit histories - will force lenders to
make credit less available. When people and companies can't borrow money
as easily, the economy tends to slow down.
"There is not going to be one sort of clear signal that suggests
everything is OK," Malone said, referring to the subprime and credit
worries. "I think it's going to take time and the equity markets are
going to experience heightened volatility."
Investors could be in for more tumultuousness in the coming week, which
not only includes economic figures on productivity and consumer credit,
but also brings a meeting of the Federal Reserve's Open Market
Committee, which has left short-term interest rates unchanged for the
past year. Investors will likely be looking to its statement following
its meeting for any word on the mortgage and credit markets.
The Dow fell 281.18 to 13,182.15. As has been typical in recent
selloffs, much of the decline came late in the session; the Dow lost
more than 100 points in the final 15 minutes Friday. Despite the day's
loss, the index was off only 0.63 percent for the week.
Broader stock indicators also fell sharply Friday. The Standard & Poor's
500 index dropped 39.14, or 2.66 percent, to 1,433.06, and the Nasdaq
composite index fell 64.73, or 2.51 percent, to 2,511.25. For the week,
the S&P fell 1.77 percent, while the Nasdaq fell 1.99 percent.
The concerns have pulled stocks from highs seen only weeks ago. The Dow,
which on July 19 closed above 14,000 for the first time, now sits about
819 points below that level. That 5.9 percent decline puts the Dow more
than halfway toward the technical threshold of a correction, which is 10
percent.
Small-capitalization stocks were hit hard again Friday, partly because
the global economy appears to be growing faster than that of the United
States. Investors often contend profits at larger companies are more
likely to hold up amid a U.S. slowdown because much of their business is
drawn from overseas. The Russell 2000 index of small-capitalization
stocks fell 28.57, or 3.64 percent, to 755.42.
The session also saw a notable rise in the bond market, as investors
fled to the relative safety of fixed-income investments. The yield on
benchmark 10-year Treasury note fell to 4.68 percent from 4.77 percent
late Thursday. Bond prices move opposite yields.
The unease over the mortgage market and tightening credit Friday again
dragged down financial stocks, which have been hard hit in recent weeks.
Bear Stearns fell $7.28, or 6.3 percent, to $108.35. Lehman Brothers
Holdings Inc. fell $4.67, or 7.7 percent, to $55.78; the stock traded as
low as $55.46, below its 52-week low of $58.85. Merrill Lynch & Co. fell
$2.50, or 3.5 percent, to $70.05. The stock traded as low as $69.14,
below its earlier 52-week low of $70.86.
Investors also fled lenders. American Home Mortgage Investment Corp.
confirmed late Thursday it has stopped taking mortgage applications and
is laying off most of its 7,000 staffers. American Home dropped 76
cents, or 52 percent, to 69 cents.
Countrywide Financial Corp. fell $1.77, or 6.6 percent, to $25. The
nation's biggest mortgage lender said late Thursday it has adequate
access to cash and isn't facing the liquidity crunch that is hitting
dozens of other smaller players.
In economic news, which didn't provide much reason for investors to look
past the mortgage and credit concerns, the Labor Department said nonfarm
payrolls rose 92,000 last month, less than the 132,000 jobs created in
June and below the average forecast of about 135,000. Also, unemployment
ticked up to 4.6 percent - a six-month high - from 4.5 percent in June.
Still, overall unemployment remains low, analysts noted.
Also, the Institute for Supply Management said its non-manufacturing
index, which measures service sector activity, fell in July to 55.8 from
60.7 in June. Wall Street had expected a reading of 59, according to
Thomson Financial/IFR.
Investors still uncertain about the effect of rising subprime mortgage
defaults on the broader economy have regarded the stable job market and
consumer spending as signs the economy might hold up despite a tighter
lending climate. That's because people with steady paychecks are more
likely to keep spending and pay back their debt. At the same time, some
pullback in employment might ease some concerns about wage inflation.
"I think the ISM and the jobs numbers are going to accelerate the
general consensus view that maybe the economy is slower than
anticipated," said Subodh Kumar, global investment strategist at Subodh
Kumar & Assoc.
"The market has become very much driven from data point to data point
because of uncertainty of a number of issues," he said, citing unease
over credit, oil prices, and a weak dollar.
Crude oil futures settled down $1.38 at $75.42 per barrel on the New
York Mercantile Exchange after the employment report suggested the
economy could slow and demand for oil could fall. Crude closed at a
record $78.21 a barrel on Tuesday, though ended the week 2 percent lower.
Declining issues outnumbered advancers by about 5 to 1 on the New York
Stock Exchange, where consolidated volume came to 4.54 billion shares
compared with 4.18 billion traded Thursday.
In Asian trading, Japan's Nikkei stock average fell 0.03 percent, Hong
Kong's Hang Seng index rose 0.4 percent, and China's Shanghai Composite
Index rose 3.5 percent. In Europe, Britain's FTSE 100 fell 1.21 percent,
Germany's DAX index fell 1.31 percent, and France's CAC-40 fell 1.48
percent.
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The Dow Jones industrial average ended the week down 83.56, or 0.63
percent, at 13,181.91. The Standard & Poor's 500 index finished down
25.89, or 1.77 percent, at 1,433.06. The Nasdaq composite index ended
down 50.99, or 1.99 percent, at 2,511.25.
The Russell 2000 index finished the week down 22.41, or 2.88 percent, at
755.42.
The Dow Jones Wilshire 5000 Composite Index - a free-float weighted
index that measures 5,000 U.S. based companies - ended Friday at
14,432.34, down 278.44 for the week. A year ago, the index was at 12,826.14.
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