Wall Street plunges on worries about Countrywide, pending home sales drop
NEW YORK -- Wall Street skidded lower in another fitful session Tuesday, with investors worried that the tumbling economy may not only cripple mortgage lenders like Countrywide Financial Corp. but also create problems for other companies like AT&T Inc. The Dow Jones industrials fell nearly 240 points.
Investors tried to take the market higher at many points during the day, but eventually succumbed to another stream of bad news. The Dow and the Standard & Poor's 500 index are down more than 5 percent so far this year and the Nasdaq composite index is down nearly 8 percent, having been pummeled since Jan. 1 due to worse-than-anticipated readings on the economy.
The day's events raised fears that fourth-quarter earnings reports, which start pouring in later this week, may not meet already lowered expectations.
In the morning, the National Association of Realtors said its index tracking pending U.S. home sales fell 2.6 percent in November, a larger decline than the market expected. Jitters about the profitability of Countrywide and KB Home kept Wall Street on edge throughout the day.
Many traders have bet recently that Countrywide might need to file for bankruptcy. Countrywide denied that rumor Tuesday, but its stock plunged 17 percent. Lehman Brothers said in a note that Countrywide's earnings power has declined severely, and The New York Times reported the company fabricated documents related to the bankruptcy case of a Pennsylvania homeowner.
Late in the day, the chief executive of AT&T said at a conference that the phone company was seeing some slowdown in its consumer businesses, though not in wireless. That was the last straw for the market, and sent stocks tumbling.
"Anything that talks of contagion spreading to the general economy ... will definitely spook the market," said Joseph V. Battipaglia, chief investment officer at Ryan Beck & Co. "The Fed still has more work to do. They're clearly cutting rates into economic weakness, which to many means that they're somewhat behind the curve. And that's a concern for investors."
The day's abortive advance was due in part to rising hopes that the Federal Reserve, seeing the same bleak economic numbers as Wall Street, will continue its campaign of rate cuts to prevent a recession. The Fed meets Jan. 29-30.
The Dow fell 238.42, or 1.86 percent, to 12,589.07, after ratcheting up and down through the day.
Broader stock indicators also sank. The S&P 500 index dropped 25.99, or 1.84 percent, to 1,390.19, and the Nasdaq, reflecting uneasiness about tech stocks after AT&T's news, declined 58.95, or 2.36 percent, to 2,440.51.
Bond prices rose. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 3.78 percent from 3.84 percent late Monday.
Recession fears have been thwarting stock rally attempts so far this year, said Richard Sparks, senior equities analyst at Schaeffer's Investment Research. "It's difficult to balance the ability to cut rates to stave off a recession with the stated goal that the Fed has to not spur inflation. There's a question out there: Can the Fed do enough?"
Last week's Labor Department report showing a rise in unemployment to 5 percent and meager jobs growth suggested to Wall Street that it had been too confident last year in the economy's ability to shake off a sinking housing market. A disappointing uptick in the International Council for Shopping Centers' year-over-year chain store sales -- 1.9 percent, the smallest gain since June -- added to the downbeat mood.
Philadelphia Fed President Charles Plosser said in a speech the central bank remains open to further rate reductions given the state of the economy, but that inflation remains a concern. Gold prices surpassed their 1980 levels and reached a record above $880 an ounce Tuesday on the New York Mercantile Exchange, while crude prices resumed their climb, rising $1.24 to $96.33 a barrel.
The dollar fell against most rival currencies, except the yen.
Alcoa Inc. on Wednesday officially kicks off the fourth-quarter earnings season, which investors are pessimistic about.
"The picture doesn't look good right now and the fear is that what we saw through the economic data points last week will be carried through to corporate earnings," said Ryan Larson, senior equity trader with Voyageur Asset Management.
Countrywide fell $1.32, or 17.2 percent, to $6.32, while KB Home fell $1.70, or 9.2 percent, to $16.78.
AT&T fell $1.87, or 4.6 percent, to $39.16.
The Wall Street Journal reported late Monday that Bear Stearns Cos. chief executive James Cayne was planning to step down and remain chairman. The investment bank made no comment on the report Tuesday. Bear Stearns fell $5.08, or 6.7 percent, to $71.17.
Declining issues outnumbered advancers by nearly 2 to 1 on the New York Stock Exchange. Consolidated volume came to 4.62 billion shares, up from 4.10 billion shares Monday.
The Russell 2000 index of smaller companies fell 19.09, or 2.64 percent, to 704.86.
Japan's Nikkei stock average rose 0.19 percent. Hong Kong's Hang Seng index fell 0.25 percent. Britain's FTSE 100 rose 0.33 percent, Germany's DAX index added 0.42 percent, and France's CAC-40 rose 0.79 percent.
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