New Credit Worries Cap Bad Week For Markets
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Saturday, June 21, 2008
The specter of mortgage-related losses at the nation's largest financial firms reemerged yesterday, spooking major stock indexes into losses of nearly 2 percent.
Those fears, along with a jump in the price of oil, capped one of the worst weeks of the year for the Dow Jones industrial average. Yesterday it tumbled 220 points, or 1.8 percent. For the week, it lost 465 points, or 3.8 percent of its value.
The Standard and Poor's 500-stock index, a broader measure, was down 1.9 percent yesterday and 3.1 percent for the week.
Every sector of the S&P was in the red yesterday with consumer-discretionary businesses seeing the sharpest declines with a 3 percent drop.
This group, which includes restaurants, retail stores and media entertainment companies, tends to suffer in inflationary environments, when consumers have to reserve more of their money for basic such necessities as gas and food because those prices are going up.
Jittery commodity markets, reacting to media reports that Israel has been carrying out military exercises that could presage an attack on Iran, sent the price of oil up by $2.69 to $134.62 a barrel, just a few dollars off its all-time high.
Meanwhile, Standard & Poor's announced that it is considering cutting its credit ratings on Ford Motor, General Motors and Chrysler, due to the damage to auto sales caused from high gasoline prices.
The embattled financial sector also made headlines after Merrill Lynch analyst Edward Najarian cut his earnings estimates for a dozen U.S. banks by 22 percent for 2008 and 19 percent for 2009, saying they are in "capitulation mode."
Citing uncertainty over the banks' capital reserve levels, he added that he does not expect credit conditions to recover until 2010.
"Our higher credit loss outlook is driven by higher loss assumption in nearly all consumer and commercial loan categories," Najarian wrote in a note to clients. "We have especially increased our loss assumptions for residential construction loans and home equity."
Najarian's comments echoed those from other analysts from Credit Suisse, Deutsche Bank and Goldman Sachs, who have been downgrading national and regional banks in recent weeks.
Goldman, for one, forecasted Tuesday that U.S. banks will need to raise $65 billion of additional capital to deal with credit losses.
