Wall Street got another dose of painful reality today, with stocks falling sharply as investors recognised that few industries are safe from the consumer spending slump.
The Dow Jones industrial average managed to lift off its lows of the day, but still closed down nearly 180 points.
It became clear to investors that it is going to be hard to rely on the average consumer to pull the economy out of its downturn.
Last night, Starbucks reported lower sales across the coffee chain, and early today, Toll Brothers posted a sharp drop in revenue and said it was too difficult to predict what the luxury homebuilder’s profit would be next year.
Wall Street was also jittery as the nation’s feeble car makers await a bail-out from the US government similar to the one given to the ailing insurer American International Group.
General Motors, whose shares have plunged to 60-year lows, said yesterday it would cut 1,900 factory jobs on top of the 3,600 cuts it announced on Friday.
Stocks did recover from deeper losses after a media report that a BlackRock executive said a 30 billion Bear Stearns mortgage portfolio could be worth more than its market value suggests.
And in another promising sign for mortgages, the US government announced the largest moves yet to help homeowners renegotiate hundreds of thousands of delinquent loans held by Fannie Mae and Freddie Mac.
But the market ultimately ended lower, acknowledging that although the mortgage crisis that spawned the current economic deterioration is being addressed, the economy remains extremely troubled.
There were no economic reports released today, since the US government and bond markets were closed for Veterans’ Day. But investors did not need US government data to see that the economy’s slide is not over – the litany of troubling corporate news was enough.
Wall Street has been anticipating grim results from corporate America, but it cannot gauge yet how bad they could get.
“We’re in a situation where we really don’t know how deep a recession we’re in,” said Jim Herrick, manager of equity trading at Baird & Co. “Until there’s some clarity on the economy and clarity with earnings, we’ll definitely be stuck in this trading range.”
The market has been giving back gains recently – including a 248-point advance last Friday – as it tries to recover from October’s heavy selling.
Stocks pared nearly all of its losses on the report that BlackRock President Robert Kapito said a Bear Stearns mortgage portfolio is generating cash flow, but then sank again.
It was the collapse of the subprime mortgage market more than a year ago and a resulting series of financial industry catastrophes that led to the economy’s current predicament.
According to preliminary calculations, the Dow Jones industrial average shed 176.58, or 1.99%, to 8,693.96 after falling by more than 300. The blue chip index has not dipped below the 8,000 mark in trading since October 10, but is down about 35% since the start of the year.
Broader stock indicators declined as well. The Standard & Poor’s 500 index fell 20.26, or 2.20%, to 898.95, and the Nasdaq composite index dropped 35.84, or 2.22%, to 1,580.90.
The Russell 2000 index of smaller companies fell 10.81, or 2.19%, to 482.29.