http://www.bloomberg.com/apps/news?pid=20601087&sid=aKghDn0KVzM8&refer=home
By Eric Martin
July 7 (Bloomberg) — U.S. stocks fell, sending the Standard & Poor’s 500 Index into a bear market, as concern that banks will be saddled with more losses from mortgage debt erased the biggest gain in three weeks.
Fannie Mae and Freddie Mac, the two largest U.S. providers of financing for home loans, tumbled on speculation they will be forced to raise more capital. JPMorgan Chase & Co. and Citigroup Inc. also retreated, sending the S&P 500 Financials Index to its lowest level since October 2002. Exxon Mobil Corp. and Schlumberger Ltd. dropped as crude slid.
The S&P 500 lost 17.15 points, or 1.4 percent, to 1,245.75 at 2:01 p.m. in New York, extending its plunge from an October record to more than 20 percent. The Dow Jones Industrial Average sank 118.63, or 1.1 percent, to 11,169.91, erasing a rally of almost 111 points. The Nasdaq Composite Index fell 24.53, or 1.1 percent, to 2,220.85. Four stocks dropped for each that rose on the New York Stock Exchange.
“The realization of the depth of the credit crunch and depth of the financial crisis is really starting to stick,” said Walter Prendergast, a New York-based money manager at Paradigm Capital Management Inc., which oversees $2 billion. “It’s not time to believe that the end is near.”
Stocks rose earlier as the retreat in oil prices boosted the outlook for corporate profits and the S&P 500 traded at the cheapest relative to earnings since April, its best month in five years.
Fannie, Freddie
Fannie Mae tumbled $2.89, or 15 percent, to $15.89. Freddie Mac retreated $3.04, or 21 percent, to $11.46.
Lehman Brothers Holdings Inc. analysts said in a report today that an accounting change may force Fannie Mae to add $46 billion of capital and Freddie Mac to add $29 billion. Speculation that the companies may need to make further writedowns also weighed on the stock, said John Tierney, a credit strategist at Deutsche Bank AG in New York.
JPMorgan, the third-largest U.S. bank by assets, tumbled $1.31, or 3.7 percent, to $34. Citigroup, the biggest, lost 70 cents, or 4.2 percent, to $16.12.
Companies that invest in mortgage bonds dropped. Crystal River Capital Inc., a New York-based investment trust that owns securities backed by residential and commercial loans, plunged 32 percent to $2.29, the biggest drop since its 2006 initial public offering. New York-based Annaly Capital Management Inc. slid 9.7 percent to $14.09, an 11-month low. Capstead Mortgage Corp. lost 11 percent to $9.62.
The S&P 500 Financials Index fell 4.1 percent as 88 of 89 of its companies declined.
$401.8 Billion
The credit-market contraction has costs banks and brokerages worldwide at least $401.8 billion of writedowns since the beginning of last year, according to data compiled by Bloomberg.
Profits at financial companies fell 60 percent on average in the second quarter, according to analyst estimates compiled by Bloomberg.
Alcoa Inc. is scheduled to report second-quarter results tomorrow after the close of U.S. trading, beginning an earnings season that will probably mark the longest streak of consecutive profit declines for S&P 500 companies since 2002. The world’s third-largest aluminum producer may say profit dropped 19 percent to 66 cents a share, according to consensus estimates compiled by Bloomberg. Alcoa added 28 cents to $33.06.
Earnings Watch
Earnings for all S&P 500 companies probably shrank for a fourth straight quarter, falling 11.2 percent, according to the average estimate of analysts surveyed by Bloomberg. General Electric Co., which in April posted its first quarterly earnings decline in five years, is expected to announce results on July 11. GE may say profit decreased 2.7 percent to less than 54 cents a share, according to analysts’ estimates.
Energy companies were the second-biggest drag on the market after financials. Exxon, the biggest U.S. oil producer, retreated $1.23 to $87.04. Schlumberger, the largest oilfield-services company, sand $2.42 to $99.46.
Yahoo Inc., operator of the most-visited U.S. Web site, jumped $1.83, or 8.6 percent, to $23.18. Microsoft Corp. said it may try to buy the search business or the whole company if investor Carl Icahn succeeds in replacing Yahoo’s board. Microsoft has been in talks over the past week with Icahn, who controls about 69 million Yahoo shares, or about 5 percent.
Stocks climbed in Europe and Asia following a rout that left global equities at the cheapest valuations in at least 13 years.
To contact the reporter on this story: Eric Martin in New York at emartin21@bloomberg.net.
Last Updated: July 7, 2008 14:02 EDT
