Behind Recession Fears, Stocks Hit a Low for the Year
Saturday, March 8, 2008
Weakness in the nation's credit markets and fears of a recession led to a volatile week of trading on Wall Street, with every major indicator ending at its lowest point of the year.
Nearly every sector closed the week down, with financial stocks taking the worst beating. They fell 5.95 percent, driven by investor fear that more institutions will have to decrease the book value of mortgage-related holdings.
Much of the week's losses came yesterday and the day before.
A report Thursday from the Mortgage Bankers Association that said the percentage of outstanding mortgages in foreclosure set a record sent stocks into a tailspin. They plunged again yesterday after a government employment report showed falling payrolls.
"Obviously, there is some real carnage today, and there is some fear that is pervasive in the market," said Jim Herrick, director of equity trading at Robert W. Baird. "If there is anybody out there that still thinks we are not in a recession, then I think the jobs report confirmed it today."
The Dow Jones industrial average fell 146.70 yesterday, to 11,893.69, bringing its two-day loss to 361.30. The broader Standard & Poor's 500-stock index dropped 10.97, or 0.84 percent, to 1293.37, its lowest level since August 2006. The tech-heavy Nasdaq composite index decreased 8.01, or 0.36 percent, to 2212.49.
"It has been a really rough week," said Andrew Brooks, head equity trader for T. Rowe Price. "The credit concerns across all asset classes have dominated the markets, and in some respects overwhelmed the markets."
For the week, the Dow ended down 372.70, or 3.04 percent. The S&P 500 ended down 37.26, or 2.80 percent, while the Nasdaq ended down 58.99, or 2.60 percent.
The slide in stocks yesterday came despite the Federal Reserve saying it will make $200 billion available to banks and financial institutions in an attempt to get the nation's credit machine running again. Every sector but utilities, which increased 0.1 percent, declined this week, according to Standard & Poor's.
Driving down financial stocks was continued bad news coming from the mortgage and housing markets. Thornburg Mortgage, the jumbo loan specialist, said yesterday that it may have trouble continuing "as a going concern" because it cannot meet its lenders' demands for $610 million of cash or collateral.
Mortgage troubles also hit Carlyle Capital, a publicly traded financial fund managed by the District-based Carlyle Group, which is private. Trading in shares of Carlyle Capital, which is listed on the Euronext in Amsterdam, was suspended yesterday. On Thursday, the company said it had failed to reach lenders' minimum requirements on its $21.7 billion portfolio of mortgage-backed securities.
Investors in municipal bonds, which are typically considered safe, were worried by troubles at Ambac, which insures those bonds. The company's stock opened at a low of $6.56 yesterday, hurt by earlier reports that a plan to split the company in two had fallen apart. After the company told investors yesterday that it was selling $1.5 billion of shares and convertible debt in an attempt to stay afloat, the stock closed at $9.50. Its 52-week high is $96.10.
"As far as the credit markets are concerned . . . I think there are still problems that have not yet surfaced," said Stanley Nabi, vice chairman of Silvercrest Asset Management.
Light, sweet crude for April delivery hit new highs this week, surging to $106.54 yesterday but closing down 32 cents for the day, at $105.15 a barrel.
For the year, the Dow is down 1,371.13, or 10.34 percent. The S&P 500 is down 174.99, or 11.92 percent. And the Nasdaq is down 439.79, or 16.58 percent.