NEW YORK -- Wall Street pulled back Wednesday, sending the Dow Jones industrials down more than 130 points on Merrill Lynch & Co.'s severe credit-related losses and a sharp September drop in existing home sales.
The market got one of its most-feared scenarios: Not only is the housing implosion dampening corporate profits, it's accelerating.
Merrill said it wrote down $7.9 billion in fixed-income instruments called collateralized debt obligations and from defaulting subprime mortgages -- more than the $5 billion writedown the investment bank estimated earlier this month. The result was a net loss for the quarter of $2.3 billion.
The worse-than-anticipated loss indicated the financial sector may be in a more dire situation than anticipated because of the credit squeeze that was triggered in part by spikes in mortgage defaults. In a conference call with investors, Merrill CEO Stan O'Neal pointed to "renewed signs of volatility and weakness" in the market environment. Merrill shares dropped $4, or 5.9 percent, to $63.12.
The sinking housing market could aggravate the financial sector's troubles. The National Association of Realtors reported that existing home sales fell in September for the seventh straight month by a larger-than-expected 8 percent -- the largest decline in records dating back to 1999.
Merrill's writedown and the plunge in home sales combined to create fear of a recession among investors, said Al Goldman, chief market strategist at A.G. Edwards. But he said he thinks the fear is overblown; so far 185 of the S&P 500 components have reported, with 65.6 percent showing upside surprises.
"Volatility has increased substantially primarily because we have a very nervous market," said Al Goldman, chief market strategist at A.G. Edwards. "If there is good news, the market pops up. If there is bad news, it falls."
The Dow fell 135.92, or 0.99 percent, to 13,540.31, giving back gains made earlier in the week. The blue-chip index briefly fell more than 200 points in late afternoon trading.
Broader stock indicators also dropped. The Standard & Poor's 500 index fell 19.80, or 1.30 percent, to 1,499.79, while the technology-dominated Nasdaq composite index lost 53.89, or 1.93 percent, to 2,745.37.
The tech sector lost the momentum it had earlier the week. The biggest loser among the 30 Dow companies was Nasdaq-traded Intel Corp., which suffered a blow after several chip companies, including Broadcom Corp., reported disappointing results late Tuesday. Intel fell $1.08, or 4 percent, to $25.72 while Broadcom slid $7.51, or 17.9 percent, to $34.55.
And Amazon.Inc. said late Tuesday its quarterly profit more than quadrupled, but it only beat per-share estimates by a penny. Investors didn't see enough reason to bring the Internet retailer's shares, already at their loftiest level since 1999, even higher.
Amazon plunged $15.32, or 15.2 percent, to $85.50.
The Russell 2000 index of smaller companies was down 18.73, or 2.29 percent, at 799.80. While large established companies can usually manage to operate in tight lending environments, small start-ups have a harder time because they rely on loans to grow their businesses.
Treasury bond prices rose on the prospect of a worsening housing market. The yield on the benchmark 10-year Treasury note, which moves inversely to the price, fell to 4.34 percent from 4.40 percent late Tuesday.
The Federal Reserve meets next week to decide whether to lower interest rates to help loosen up the credit markets. But investors are unsure a rate cut would solve the many ills affecting debt, and furthermore, a rate cut might not even happen if inflation appears to be too much of a risk.
After retreating from last week's record highs, crude oil resumed its climb after a surprise drop in inventories. December crude jumped $1.33 to $86.60 a barrel on the New York Mercantile Exchange.
The dollar was mixed against other major currencies, while gold prices fell.
Declining issues on the New York Stock Exchange outnumber decliners by nearly 5 to 1, where volume came to 651.2 million shares.
In Asian trading, Japan's Nikkei stock average fell 0.56 percent, while Hong Kong's Hang Seng index fell 0.15 percent. In European trading, Britain's FTSE 100 fell 0.49 percent, Germany's DAX index fell 0.18 percent, and France's CAC-40 fell 0.56 percent.
Labels: Dow Jones, Stocks, Wall Street
# posted by
Brian Vanderhoff @ 1:45 PM
