By Alejandro Lazo
Washington Post Staff Writer
Friday, March 28, 2008
U.S. stocks sank yesterday after concerns that a major Wall Street bank could be short on cash and that profits at technology companies might be weaker than expected.
The drop also came after the government reported that growth in the economy slowed dramatically in the last quarter of 2007. The Commerce Department's Bureau of Economic Analysis confirmed that the economy grew at an annual pace of only 0.6 percent, as officials had earlier estimated. The report showed that domestic spending contracted for the first time since the 2001 recession but the economy still grew because of positive foreign trade.
The blue-chip Dow Jones industrial average fell 120.40, or 0.97 percent, to 12,302.46. The Standard & Poor's 500-stock index fell 15.37, or 1.15 percent, to 1325.76. The tech-heavy Nasdaq composite index fell 43.53, or 1.87 percent, to 2280.83.
Every sector fell, except for utility companies. Financial firms -- in particular, investment bank Lehman Brothers -- and technology companies were the biggest losers.
"The market is still facing a lot of uncertainty," said Todd Clark, director of trading at Nollenberger Capital Partners, citing the high price of oil and the dollar's continued weakness. "We have had lousy economic data. Today's data was a little better than expected, but you did not see the market trading off that, and so there is still a lot of uncertainty."
Shares of Google slid 3.08 percent, to $444.08, after analysts reported that the company's "paid clicks" rose only 3.1 percent in February compared with the corresponding month a year earlier. Paid clicks, a major source of Google's revenue, occur when an Internet user clicks on an ad.
Meanwhile, shares of Oracle plunged 7.21 percent, to $19.43, after the software company reported revenue that fell short of many analysts' expectations. The firm said its sales are down because customers are delaying orders.
Stanley Nabi, vice chairman of Silvercrest Asset Management, said the decline of Oracle's shares was an example of the "finicky" state the market is in.
Nabi also pointed to rumors circulating on Wall Street that Lehman Brothers may be short of cash. Similar rumors two weeks ago about financial giant Bear Stearns prompted a bank run that led to that firm's collapse and sale to J.P. Morgan Chase.
"This morning's rumors of Lehman circulated, and immediately all of the investment houses went down," Nabi said. "This is not over -- these rumors, some of them are false, some of them exaggerated and some of them may hold true."
Shares of Lehman Brothers fell 8.90 percent, to $38.71. Shares of Bank of America and J.P. Morgan Chase fell 3.01 and 2.83 percent, respectively.
The Federal Reserve reported that some big investment firms took it up on its recent offer to help them with liquidity by letting them borrow Treasury securities and use risky mortgage-backed securities as collateral. The Fed said it auctioned $75 billion worth of Treasury securities, with bidders paying an interest rate of 0.33 percent.
Some economists said yesterday that they expected both consumer spending, which is the bulwark of the U.S. economy, and other forms of domestic spending to continue to decline as the housing slump grows deeper and wider.
"There is a lot of weakness in the economy. Consumers are pulling back because of what is going on in the housing market," said Gus Faucher, director of macroeconomics at Moody's Economy.com. "When the value of your house is going down, you may not take a vacation or buy a car, or you may take other measures to save in an attempt to get your balance sheet in order."