Stocks Skid Back Into Correction Territory
Stocks skidded back into correction territory as investors worried that the tumbling economy may not only cripple mortgage lenders like Countrywide Financial but create problems for other companies like AT&T.
The Dow Jones Industrial Average and S&P 500 moved back into "correction" territory, having fallen more than 10% from their recent highs for the second time in recent months.
As has been the case on several occasions during the new year, including Monday, stock indexes showed strength at the opening then slowly gave ground through the trading day.
Rumors of more problems at Countrywide Financial sent stocks to their daily lows heading into the afternoon session, though the bank quickly doused the stories as untrue.
AT&T shares also tumbled after Chairman and Chief Executive Randall Stephenson said the telecom carrier is experiencing some slowdown in its consumer business segments.
The market remained rife with the belief that unless the Federal Reserve steps in with bold moves at its meeting later this month, Wall Street is heading into a prolonged bear-market correction.
"We're in a situation right now where there's absolutely no catalyst to move the market higher and there's no real reason for people to step into the market," said David Twibell, president of wealth management for Denver-based Colorado Capital Bank. "There's a sense out there in the marketplace that the Fed does not have a consistent message. The Fed's being much too passive at this juncture."
Even with the belief that the Fed will cut rates this much by as much as 50 basis points, the financial sector still moved lower. It was a significant day for banks, as word spread that Bear Stearns CEO Jimmy Cayne was stepping downamid harsh criticism for his handling of the subprime collapse that has infected the industry.
Also in the banking sector, bond insurers MBIA and AMBAC saw their shares tumble.
Transportation stocks also slumped badly after oil prices rebounded off a sharp drop on Monday.
Shares fell at Boeing and United parent UAL as analysts predicted that the surge in commercial plane orders would nosedive in 2008.
E-Trade hit its all-time low as speculation continued to mount that the online brokerage would go out of business without additional capital.
Meanwhile, KB Home posted a quarterly loss of nearly $773 million with abandonment and impairment charges. KB said it expects 2008 to be another rough year for the housing market, and its shares dropped more than 5 percent.
In related news, pending home sales fell 2.6 percent in November from an October level that was revised sharply upwards. Sales should hold steady over the next several months before turning upwards, according to National Association of Realtors chief economist Lawrence Yun.
Other leaders in the building industry saw their shares fall sharply as well.
Trading was volatile, with indexes dipping to their daily lows shortly after noon then struggling to find level ground. Much of the uncertainty came from mixed messages in earnings reports.
"That is historically the pattern in a prolonged correction or a bear market, though I'm not sure if we're in either," Twibell said. "You open up relatively strong, but there's no real support in the market so you just gradually fade during the course of the day."
Circuit City reported an analyst downgrade after the retailer said it had a double-digit drop in sales at stores open more than a year, while SuperValu reported a higher quarterly profit but also expressed concern over whether inflation would depress consumer spending.
Amgen shares gained after the biotech adjusted its 2007 sales outlook to be "well above" its current forecast. E-mail encryption company Zix also saw a sharp gain after it said its fourth-quarter results would meet forecasts.
Pharmaceuticals had a huge day as Merck led Dow gainers while Isis was among the biggest gainers on the Nasdaq. A partnership the company, which is in late-stage developments of a cholesterol drug, struck with Genzyme attracted much attention at the JP Morgan Healthcare Conference.
King Pharmaceuticals also surged after the company resolved a lingering patent dispute.
Meanwhile, Alcoa, which is expected to report disappointing earnings Wednesday, continued its slide.
Gold surged to a record high above $876 per ounce with support from a weaker dollar and firm oil, while Treasuryseased as investors found confidence in riskier equity investments.