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Stocks fall following concerns about credit, weaker-than-expected economic readings
^Eds: ADDS three grafs at end with indexes` weekly performance<
^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 281.42, or 2.09 percent, to 13,181.91. 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.
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.
___
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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