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Stocks Nosedive As Oil Hits Record
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Tanona also projected another quarter of significant write-downs for Merrill Lynch, which has written off $30 billion.
Even Goldman suffered a setback yesterday when it was downgraded by Wachovia despite a relatively strong showing recently.
"The resolution of the credit crisis is not in the eight or ninth inning but rather in the middle innings," said John G. Lonski, chief economist for Moody's Investors Service.
The market swoon came the day after the Fed left a key interest rate unchanged and indicated a deepening concern about inflation. Some analysts said the Fed's statement also contributed to the stock sell-off because the heightened focus on inflation signaled a greater likelihood of interest rate increases later in the year. Higher interest rates can depress growth.
After its policymaking meeting Wednesday, the Fed said that "recent information indicates that overall economic activity continues to expand, partly reflecting some firming in household spending." To some analysts, that suggested complacency about risks facing the economy.
Crude oil prices passed $140 before settling at $139.64 after Chakib Khelil, president of the Organization of the Petroleum Exporting Countries told French television that oil would probably reach $150 to $170 this summer. Libya added to supply concerns by saying it might cut production. The threat came in response to a U.S. law that permits victims of terrorist attacks to receive compensation by seizing foreign assets, according to Bloomberg News.
In response to high gas prices, sales of big pickup trucks came almost to a halt last month. That contributed to Goldman's downgrade of GM from neutral to sell. GM's stock fell 11 percent yesterday. Ford Motors also fell. Chrysler, in the meantime, dismissed speculation that it planned to file for bankruptcy.
U.S. automakers have been adjusting by cutting production of larger vehicles and ramping up production of smaller, more fuel-efficient cars, but they cannot do it overnight.
"They have to find the cash to do it. They will find the cash to do it. It's not an either-or situation, and they know that," said Tom Libby, an analyst with Power Information Network. "In the short term, they're going to suffer because these actions take awhile."
Technology companies Oracle and BlackBerry manufacturer Research In Motion also fell based on disappointing forecasts.
Staff writers Neil Irwin and Peter Whoriskey contributed to this report.
