Stocks tumble on concerns about lenders
EmptyNEW YORK -- Stocks plunged Tuesday, driving the Dow Jones industrials down more than 240 points in their second-biggest drop of the year as troubles piled up for subprime lenders.
Investors, bracing for a wilting economy, fled the already deflated subprime mortgage sector while problems increased for lenders such as New Century Financial Corp., Accredited Home Lenders Holding Co. and General Motors Acceptance Corp.'s residential unit. Bolstering the belief that the problems are widespread, the Mortgage Bankers Association reported that new foreclosures surged to an all-time high in the last quarter of 2006.
The subprime lending worries, coupled with anxiety over the Commerce Department's report Tuesday that U.S. retailers eked out a meager 0.1% rise in sales last month, knocked down all three major stock indexes about 2%.
The subprime market is a relatively small sector of the U.S. economy, Kelmon noted. But Tuesday's selling was accentuated by options expiring soon and by volatility that has increased since the market's big plunge two weeks ago -- a 416-point drop in the Dow that was caused partially by the problems of subprime lenders, who loan to people with poor credit.
According to preliminary calculations, the Dow fell 242.66, or 1.97%, to 12,075.96. The index is now down more than 710 points, or 5%, from its record close reached Feb. 20.
Broader stock indicators also fell. The Standard & Poor's 500 index fell 28.65, or 2.04%, to 1,377.95, and the Nasdaq composite index slid 51.72, or 2.15%, to 2,350.57.
Volume on the New York Stock Exchange, where declining issues outnumbered advancers by 5 to 1, was high at 1.94 billion shares -- more than the 1.47 billion shares at the same point on Monday but lower than the 2.38 billion shares traded on Feb. 27, when the Dow took its largest plunge since 2001.
Trading collars were triggered Tuesday afternoon when the New York Stock Exchange Composite index lost more than 180 points. The collars put a chokehold on certain orders, forbidding transactions that capitalize on discrepancies in prices.
Subprime lending jitters and sluggish retail sales drove up bond prices. The yield on the benchmark 10-year Treasury note fell to 4.50% from 4.56% late Monday.