Volatility Takes Its Toll on Wall St.

By Heather Landy
Special to The Washington Post
Tuesday, August 26, 2008

NEW YORK, Aug. 26 -- U.S. stocks got off to a rocky start this week as concerns about weakness in the housing market and volatility in oil prices continued to gnaw at investors.

The Dow Jones industrial average fell 2.08 percent, or 241.81, to 11,386.25, with all 30 members of the blue-chip index ending the session lower. The broader Standard & Poor's 500-stock index dropped 1.96 percent, or 25.36, to 1266.84. The Nasdaq composite index fell 49.12, or 2.03 percent, to 2365.59.

Analysts said the movements in stock prices were magnified by light trading volumes, reflecting late August's popularity as a vacation time. The Dow industrials have posted triple-digit swings in six of the past 10 trading sessions.

"This is what you'd call a manic-depressive market, and the volatility at this point just continues to scare people," said Doug Roberts, chief investment strategist for Shrewsbury, N.J.-based Channel Capital Research, which sells market research to investors.

American International Group was the worst performer in the Dow Jones, sinking $1.09 to $18.78 as concerns grow over whether the insurance giant will need to take more write-downs on securities tied to the mortgage market.

Bank of America, J.P. Morgan Chase and Lehman Brothers also declined, along with regional banks including Huntington Bancshares, an Ohio lender, and Atlanta-based SunTrust Banks.

Gainers for the day included Freddie Mac and Fannie Mae, which got a reprieve from investors who had pushed down the stock last week on concerns that the mortgage lenders would require a federal bailout that could wipe out shareholders.

Freddie Mac shares rebounded 48 cents to $3.29, marking their first increase in seven sessions, while Fannie Mae shares rose 19 cents to $5.19.

Two retail stocks, Dillard's and Coach, had the biggest declines among S&P 500 issues. Dillard's, the department store operator, fell 6.88 percent, or 82 cents, to $11.03, while handbags maker Coach dropped 6.78 percent, or $1.92, to $26.41.

Investors have been anxious to see how consumer spending holds up in the wake of the housing market's troubles, along with rising food and energy prices.

Oil, which is still up about 60 percent from this time last year, has pulled off its highs from mid-July, when it traded above $147 a barrel. But crude oil contracts for October delivery rose 52 cents a barrel Monday to $115.11 on the New York Mercantile Exchange.

"Even though it's a minor gain, right now with the financial instability going into the market, everybody is hoping oil continues its downward movement or is at least stabilizing," Channel Capital's Roberts said. "And now nobody knows if it's stabilizing or if it's pivoting and is about to go back up."

The threat of inflationary consumer costs and decelerating retail sales prompted Wachovia analyst Justin Yagerman to downgrade the shares of two trucking companies, Werner Enterprises and Knight Transportation. In a note to clients, Yagerman wrote that the trucking industry has had lackluster freight volumes at the start of what normally is peak shipping season, August through November. Shares of Omaha-based Werner dropped $1.50 to $22.45. Knight, based in Phoenix, fell 49 cents to $17.59. Yagerman cut his ratings on both stocks from "outperform" to "market perform."

Ryder Systems, the country's largest truck-leasing company, was not mentioned in the report, but its shares fell $4.41 to $64.72.


Bank of America fell $1.25, to $28.96.

J.P. Morgan Chase lost $1.54, to $36.13.

Lehman Brothers dropped 96 cents, to $13.45.

© 2008 The Washington Post Company