U.S. Stocks Decline Further As Credit Saga Continues
NEW YORK (MarketWatch) - U.S. stocks retreated Thursday amid data illustrating the deepening slump in the housing sector and word that Countrywide Financial, the nation's largest mortgage lender, was drawing on an $11.5 billion line of credit.
"This market is going down like free beer - we continue to have concerns on the credit side of the balance sheet, with Countrywide tapping an entire credit line to shore up its business," said Art Hogan, chief market strategist at Jefferies & Co. "I would say if there had been a day when we're trying to price in worst-case scenario, this might be it."
The Dow Jones Industrial Average fell 176 points, or 1.3%, at 12,682, with 22 of its 30 components trading in the red, with Alcoa Inc. leading the losses, with its stock down 7.3%.
Technology bellwether Intel Corp. was among the minority making gains. Its stock gained 0.4% after the chip maker was upgraded by Credit Suisse from underperform to outperform.
The S&P 500 fell 17 points, or 1.3%, to 1,389, while the technology-laden Nasdaq Composite was off 28.5 points, or 1.2%, to 2,430.
Technology stocks were mostly lower, with PC makers Apple Inc. , Dell Inc. and Hewlett-Packard Co. all losing ground. Dow stock HP was off 1.8% ahead of its quarterly earnings release after the market close. Read
Volume at the New York Stock Exchange came to 848 million, with declining stocks beating advancers 3 to 1. At the Nasdaq, 907 million shares traded, and decliners topped advancing issues, also 3 to 1.
The market briefly trimmed its losses after the Federal Reserve added $12 billion into the banking systems, with the New York Fed saying the move is part of an effort to keep the Fed funds rate at 5.25%.
Deconstruction
Ahead of the opening bell, the Commerce Department reported home builders in July started construction on the fewest number of new homes in more than a decade, with housing starts falling 6.1% to a seasonally adjusted annual rate of 1.381 million.
In other early data, the Labor Department said first-time applications for state jobless benefits climbed for last week for a third week in a row to their highest level since June 16.
"Problems with Countrywide remain a focal point, adding to concerns that credit is drying up in the mortgage market. Materials are one of the weaker sectors in the Dow on speculation the financial distress will weigh on global growth," wrote analysts at Action Economics LLC.
Shares of Countrywide Financial Corp. slid 15% after the troubled mortgage lender said it had drawn down all of an $11.5 billion credit facility to funds its operations as difficulty raising money in the credit markets poses a potential threat to its business.
Beazer Homes USA Inc. also took a hit, its shares down 2.7% as troubles mount for one of the country's larger home builders. The company's stock has lost about two-thirds of its value during the past three months as it struggles with problems including multiple probes by investigators.
Dow component Exxon was down 0.7% after reports it suffered a contractual setback to increase output from the world's second-largest offshore field in Abu Dhabi.
J.C. Penney gave an upbeat update, reporting earnings above forecast and noting a good start to the back-to-school season.
Amgen lost 2.2% after its announcement late Wednesday that it would cut up to 14% of its workforce in response to a weakening market for two anemia-fighting drugs.
Global drop
Late-day volatility again exerted downward pressure on U.S. stocks on Wednesday, with the S&P 500 losing an entire year's gains. The Dow industrials fell 167 points, the S&P 500 fell 19.8 points and the Nasdaq Composite dropped 40 points.
Stocks worldwide dropped on Thursday, with losses from Korea to Turkey to Britain, in the wake of the unfolding credit-market downturn, started by problems in the U.. subprime mortgage market.
Historical trends suggest the Dow should be trading in the range of 13,700 to 14,000, according to a study published by the Georgia Tech College of Management, which based its estimate on analyzing the relationship between the Nominal Gross Domestic Product and share prices from 1916 through the end of the second quarter of this year.
St. Louis Fed President William Poole told Bloomberg News in an interview that only a calamity would justify an interest-rate cut.
U.S. Treasury Secretary Henry Paulson said the recent turmoil in the markets will hurt U.S. economic growth but won't prompt a recession since the U.S. economy is "strong enough to absorb the losses," The Wall Street Journal reported.
Other markets
Crude oil and other energy futures fell sharply, with crude for September deliver tumbling $1.57, or 2.1%, at $71.76 a barrel on the New York Mercantile Exchange.
Treasury prices rallied, pushing yields lower, in response to the weak U.S. economic data, with the benchmark 10-year note up 14/32 at 100 21/32, its yield falling to 4.977%.
The yen remained sharply higher against its rivals early Thursday, after hitting a 13-month high vs. the U.S. dollar. The euro was down 0.06% at $1.3417 and the pound sterling down 0.11% at $1.9851. The dollar fell as low as 113.55 yen in early morning trading and subsequently recovered a bit, trading at 114.62 yen vs. 116.26 yen late Wednesday.
Gold futures fell under pressure amid a worldwide sell-off in stocks fueled by deepening troubles in the credit and subprime markets. Gold for December deliver fell $12.40, or 2%, to $667.30 an ounce. Read
By Kate Gibson