Stocks drop, erasing S&P 500's gains for 2007
By Lynn Thomasson
Bloomberg News
5:34 PM CDT, August 15, 2007
The stock market buckled and erased all of this year's gains for the Standard & Poor's 500 Index on speculation the nation's biggest mortgage lender may be forced into bankruptcy.
Countrywide Financial Corp., the Calabasas, California-based lender with about 55,000 employees, tumbled 13 percent on the New York Stock Exchange. Earlier in the day, Merrill Lynch & Co. said Countrywide could face "effective insolvency" should creditors force it to sell assets at depressed prices. Freeport-McMoRan Copper & Gold Inc. led a gauge of raw-materials producers to the biggest decline in the S&P 500 on concern mounting credit losses may slow economic growth and reduce demand for metals.
The S&P 500 dropped for a third day, losing 19.84, or 1.4 percent, to 1,406.70. The Dow Jones Industrial Average retreated 167.45, or 1.3 percent, to 12,861.47, sending the 30-stock gauge below 13,000 for the first time since April. The Nasdaq Composite Index decreased 40.29, or 1.6 percent, to 2,458.83.
"Feels like we're on the edge of a panic to me," said Jeffrey Saut, who oversees $33.7 billion as chief investment strategist at Raymond James & Associates in St. Petersburg, Florida. "In our business, psychology is everything and psychology has changed real quick on Wall Street."
European stocks fell a second day and a benchmark index for Asian shares slipped. Yields on three-month Treasury bills declined the most since 1989 as investors sought the safety of government debt. The dollar weakened to a 4 1/2-month low against the yen as investors sold riskier assets funded by loans in Japan.
The S&P 500's 6.1 percent retreat since Aug. 8 was the biggest five-day loss since Oct. 9, 2002. The Dow's 5.8 percent tumble over the same period was the largest since Jan. 27, 2003.
The benchmark index for U.S. stock volatility, called the VIX, exceeded 30 for the first time since April 2003.
Countrywide Financial dropped for a fifth day, falling $3.17 to $21.29 for the steepest decline in the S&P 500 and the shares' biggest retreat since the stock-market crash in October 1987. Merrill Lynch advised clients to sell the shares and said "funding markets are deteriorating quickly."
Amber Cousins, a spokeswoman for Countrywide, didn't return calls seeking comment.
Freeport-McMoRan tumbled $5.48 to $77.87 after the price of copper dropped to a seven-week low.
The miner led a gauge of raw-materials producers to a 3.1 percent retreat, the biggest among 10 industries in the S&P 500.
CSX Corp., the third-largest U.S. railroad, declined $2.87 to $42.27 after analysts at Citi Investment Research said the shares do not reflect the risk of a slowing U.S. economy, adding that they expect coal volumes to be little changed.
Norfolk Southern Corp., the fourth-largest U.S. railroad, retreated 71 cents to $49.37. Burlington Northern Santa Fe Corp., the second biggest, fell $1.18 to $79.05. Union Pacific Corp., the largest, lost $5.49 to $107.65. Citi had a "hold" rating for all four rail stocks.
Financial shares dropped 1 percent as a group. For the year, the S&P 500 Financials Index has lost 13 percent for the biggest decline among 10 industry groups as losses in credit markets spread throughout the industry.
Goldman Sachs Group Inc. fell $4.85 to $164.90. The world's most profitable securities firm waived fees to draw investors to its Global Equity Opportunities hedge fund after stock-market losses wiped out $1.4 billion of assets this month, according to a person with direct knowledge of the terms.
MFA Mortgage Investments Inc. declined 39 cents to $6.01 after Bear Stearns & Co. downgraded the real estate-investment trust that invests in home loans to "peer perform" from "outperform."
Financial shares rallied earlier in the day after Canadian financial services firm Coventree Inc. said it found buyers for C$600 million ($558 million) of asset-backed commercial paper, indicating a funding freeze may be lifting.
Sales of bonds backed by consumer and home loans fell 87 percent to $1.3 billion last week and no mortgage bonds were sold as short-term debt rates rose, according to data compiled by Bloomberg.
The Chicago Board Options Exchange Volatility Index increased as much as 15 percent to 31.76. Higher readings in the so-called VIX, derived from prices paid for S&P 500 options, indicate traders expect bigger share-price swings in the next 30 days.
"What that indicates is that people are worried not about this move or the past couple of weeks but the possibility of a real market sell-off or crash scenario," said Ben Londergan, co- CEO of Group One Trading LP in Chicago. "We've seen not that large a move to the downside in percentage terms but we've really had a big move up in the VIX."
More than 5 stocks fell for every one that gained on the New York Stock Exchange. Some 2 billion shares changed hands on the Big Board, 15 percent more than the three-month daily average.
Technology shares in the S&P 500 fell 1.8 percent, led by Agilent Technologies Inc. The world's biggest maker of scientific-testing equipment tumbled $3.94 to $32.39 after forecasting fourth-quarter sales and profit that fell short of analysts' estimates. The company blamed its reduced forecast on a slump in Asia and consolidation among the company's customers.
Applied Materials Inc. fell 88 cents to $20.36. The largest manufacturer of semiconductor-production machines said orders, an indicator of future sales, retreated 14 percent from the previous quarter, at the lower end of a forecast given by Chief Executive Officer Mike Splinter in May.
In economic reports, the government said consumer prices climbed 0.1 percent in July, the smallest gain in eight months, signaling the Federal Reserve may view inflation as less of a threat. Core prices, which exclude food and energy, climbed 0.2 percent and were up 2.2 percent from a year earlier. The figures matched forecasts by economists in a Bloomberg survey.
The National Association of Home Builders/Wells Fargo index of builder confidence declined to 22, from 24 in July, the Washington-based association said. A reading below 50 means most respondents view conditions as poor. The gauge has decreased for six consecutive months.
Manufacturing in New York state unexpectedly held near the highest level in more than a year in August. The Federal Reserve report showed. The New York Federal Reserve's general economic index fell to 25.1 from 26.5 in July. Economists forecast the index would decline to 18 this month, according to a survey.
In other markets, crude oil for September delivery gained 95 cents to $73.33 a barrel in New York.
The Russell 2000 Index, a benchmark for companies with a median market value of $639 million, lost 1.5 percent to 751.54. The Dow Jones Wilshire 5000 Index, the broadest measure of U.S. shares, fell 1.5 percent to 14,146.41.
The Morgan Stanley Capital International World Index, a global benchmark, lost 1.5 percent. The MSCI Asia-Pacific Index declined to a three-month low, losing 2.5 percent. In Europe, the Dow Jones Stoxx 600 Index lost 0.3 percent.
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--With reporting by Lori Rothman, Carol Massar, Rachel Wehrspann and Jeff Kearns in New York.
Copyright © 2007, Chicago Tribune
(In accordance with Title 17 U.S.C. Section 107, this material is distributed without profit to those who have expressed a prior interest in receiving the included information for research and educational purposes. I.U. has no affiliation whatsoever with the originator of this article nor is I.U endorsed or sponsored by the originator.)
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