Wall Street plunged in another erratic session today as investors worried that the slumping US economy may not only cripple mortgage lenders like Countrywide Financial, but also create problems for other companies like AT&T. The Dow Jones industrials fell nearly 240 points.
Investors tried to take the market higher at many points during the day, but eventually succumbed to another stream of bad news.
All three indexes are down substantially so far this year, having been pummelled since New Year’s Day on worse-than-anticipated readings on the economy.
That could mean that fourth-quarter earnings reports, which start pouring in later this week, may not meet already lowered expectations.
In the morning, the National Association of Realtors said its index tracking pending US home sales fell 2.6% in November, a larger decline than the market expected.
Jitters about Countrywide and KB Home, which posted a disappointing fourth quarter loss, kept Wall Street on edge throughout the day, and comments by President George Bush reiterating the problems facing the economy added to the market’s uneasiness.
Many traders have been betting recently that Countrywide might need to file for bankruptcy. Countrywide denied that rumour today, but its stock still plunged 28%.
Lehman Brothers said in a note that Countrywide’s earnings power has declined severely, and The New York Times reported the company fabricated documents related to the bankruptcy case of a Pennsylvania homeowner.
Late in the day, the chief executive of AT&T, speaking at a conference, said the phone company was seeing some slowdown in its consumer businesses, though not in wireless. That was the last straw for the market, and sent stocks and the major indexes tumbling.
The day’s abortive advance was due in part to rising hopes that the Federal Reserve, seeing the same bleak economic numbers as Wall Street, will continue its campaign of rate cuts to prevent a recession. The Fed meets on January 29-30.
“Anything that talks of contagion spreading to the general economy ... will definitely spook the market,” said Joseph Battipaglia, chief investment officer at Ryan Beck & Co, referring to the softness AT&T is seeing.
“The Fed still has more work to do. They’re clearly cutting rates into economic weakness, which to many means that they’re somewhat behind the curve. And that’s a concern for investors.”
The Dow Jones industrial average fell 238.42, or 1.86%, to 12,589.07, after going up and down through the day.
Broader stock indicators also sank. The Standard & Poor’s 500 index dropped 25.99, or 1.84%, to 1,390.19, and the Nasdaq composite index, reflecting uneasiness about tech stocks after AT&T’s news, declined 58.95, or 2.36%, to 2,440.51.
Bond prices showed little movement. The yield on the benchmark 10-year Treasury note, which moves opposite its price, stood at 3.84%.
Recession fears have been thwarting stock rally attempts so far this year, said Richard Sparks, senior equities analyst at Schaeffer’s Investment Research.
“It’s difficult to balance the ability to cut rates to stave off a recession with the stated goal that the Fed has to not spur inflation. There’s a question out there – can the Fed do enough?”
Last week’s Labour Department report showing a rise in unemployment to 5% and meagre jobs growth suggested to Wall Street that it had been too confident last year in the economy’s to shake off a sinking housing market.
Philadelphia Fed President Charles Plosser said in a speech the central bank remains open to further rate reductions, but that inflation remains a concern.
Gold prices surpassed their 1980 levels and reached a record above 880 dollars an ounce today on the New York Mercantile Exchange, while crude prices resumed their climb, rising 1.24 dollars to 96.33 dollars a barrel.
The dollar fell against most rival currencies, except the yen.
Alcoa tomorrow officially kicks off the fourth-quarter earnings season, which investors are pessimistic about.
“The picture doesn’t look good right now and the fear is that what we saw through the economic data points last week will be carried through to corporate earnings,” said Ryan Larson, senior equity trader with Voyageur Asset Management.
Countrywide fell 5.47 dollars, or 28%, to 5.47 dollars.
KB Home fell 1.70 dollars, or 9.2%, to 16.78 dollars.
AT&T fell 1.87 dollars, or 4.6%, to 39.16 dollars.
Declining issues outnumbered advancers by nearly 2 to 1 on the New York Stock Exchange, where volume came to 1.84 billion shares.
The Russell 2000 index of smaller companies fell 19.09, or 2.64%, to 704.86.