U.S. Stocks Post Sharp Weekly Losses; Bear-market Nears
NEW YORK (MarketWatch) -- Stocks fell sharply Friday and this week, with surging oil prices, ailing financials and broad concerns about the economy catching up to a market that has now fallen nearly 20% from its 2007 highs, which would mark an official entry into bear-market territory.
With crude hitting a new high at $142.99 a barrel, the market grew increasingly worried about the impact of surging commodities prices on consumers. In morning trade, a survey by the University of Michigan revealed consumer confidence slid further in June.
"With oil prices bursting through the $140 threshold and seemingly unstoppable, economists are busily debating whether it's all going to end in fire (inflation) or ice (deep recession)," said Doug Porter, senior economist at BMO Capital Markets.
"Equity markets aren't so concerned about the fineries of the debate, but are instead much more focused on the 'it's all going to end' portion of the discussion," he wrote in a note.
After plunging 358 points on Thursday, the Dow Jones Industrial Average [ fell another 106 points, or 0.9%, to 11,346 on Friday.
After sliding 4.2% this week, the Dow has now lost nearly 20% since its October 9 record high of 14,165. The blue-chip index is also on track for its worst month of June since 1930.
Of the Dow's 30 components, 22 fell, with investors again heavily selling battered financial components American Express Co. , Citigroup Inc. , and J.P. Morgan Chase & Co. .
American International Group Inc. fell 1.2%, after the insurance giant said it will absorb $5 billion in losses from securities lending, Bloomberg News reported, citing an executive there.
The S&P 500 Index fell 4.8 points, or 0.4%, to 1,278, while the Nasdaq Composite Index dipped 5.7 points to 2,315.
Bear market?
The S&P 500 index, which most market watchers follow instead of the Dow to determine the direction of the broad market, is now off 18.1% from its high of 1,562 points hit on October 10, 2007.
"It still doesn't mean a lot because the market's direction now remains a function of the economic backdrop," said Paul Nolte, director of investments at Hinsdale Associates.
"This a milestone along the way, not a destination," Nolte said of the likelihood the broad market will officially enter bear-market territory next week. "I would say it's only the beginning of the bear-market given that it's not unusual for the market to lose 30% or more in a recession," he said.
The market has also lost all of the gains it posted since mid-March, after the Federal Reserve staged massive interventions, including the bail-out of investment firm Bear Stearns , to try and ease the credit crisis that stemmed from bad home loans.
But while panic was averted, financial firms and credit markets continue to feel pain as investors were reminded of again on Friday. Rating agency Moody's said it may downgrade Morgan Stanley , citing big trading losses recently that have undermined confidence in the investment bank's risk management.
Financials shares were the worst performers on the S&P 500, with the sector losing 1.2% Friday, followed by consumer staples, off 1%, and consumer discretionary stocks, off 0.9%.
Tech shares fell further, with Palm Inc. losing over 8.3% as the handset maker reported a worse-than-forecast 26% sales fall and didn't offer an outlook.
Sony Ericsson, the mobile-phone venture of Sony Corp. and Ericsson , warned of slowing demand for mid to high-level phones. Ericsson shares fell 5.4%.
Trading volumes showed 229 million shares exchanging hands on the New York Stock Exchange, and 189 million trading on the Nasdaq stock market. Decliners topped gainers by nearly 2 to 1 on both exchanges.
In economic news, May core inflation, which excludes food and energy, came in lower than forecast, reducing speculation that the Federal Reserve will have reason to rais interest rates this year.
But this along with another dip in consumer confidence in June, pressured the dollar and helped boost crude futures further.
Stocks were crushed on Thursday after tepid earnings outlooks from technology bellwethers Oracle Corp. and Research In Motion Ltd. ; negative notes from Goldman Sachs on brokers and General Motors Corp. ; and oil prices reaching $140 a barrel.
The Dow plunged 358 points, the S&P 500 lost 38 points and the tech-heavy Nasdaq slumped 79 points.
"We're getting to the stage now where rising oil prices are really starting to bite," said Richard Batty, director of strategy at Standard Life Investments. "They're causing a crimping in terms of retail spending and consumer confidence."
The drop in stock markets over the last couple of sessions is justified, according to Batty, given the rise in oil and the fact that investors are reassessing the earnings outlook of those companies that haven't been negatively impacted so far.
In other news, KB Home fell over 2.3% after joining fellow homebuilder Lennar Corp. in reporting a quarterly loss.
As expected, Anheuser-Busch Cos. formally rejected InBev's $46 billion, takeover offer, worth $65 a share.
By Nick Godt