Stocks slump on Citigroup worries
EmptyNEW YORK -- The stock market fell sharply Tuesday as troubling outlooks for Citigroup Inc. and Intel Corp. underscored once again for investors that U.S. companies, led by the financial sector, are being pummeled by the weakening economy. The Dow Jones industrial average fell more than 150 points.
Merrill Lynch has reduced its full-year earnings prediction for Citigroup because it believes the bank could write down another $18 billion of debt tied to souring mortgages, according to Dow Jones Newswires. The stock, one of the 30 companies in the Dow, fell to new nine-year lows, and took other financial stocks down with it.
Intel, meanwhile, lowered its first-quarter earnings forecast, a move that heightened worries about the technology industry. Chipmakers are considered an early warning system for troubles throughout the sector.
Wall Street remained anxious amid a series of speeches from Federal Reserve officials. Fed Chairman Ben Bernanke warned in a speech in Florida early Tuesday that more home foreclosures are coming, while Vice Chairman Donald Kohn said in prepared remarks to U.S. senators that banks likely face more asset write-downs but their cash levels are sound.
The disappointing earnings forecasts and comments from Fed officials come as Wall Street tries to determine whether the economy is in recession -- and whether investors have been too optimistic about corporate profits bouncing back in the second half of the year.
"The soft economy creates a difficult profit environment for most firms. And with investors' skepticism at high levels, they are quick to sell," said Alan Gayle, senior investment strategist at Trusco Capital Management.
The Dow Jones industrial average fell 151.99, or 1.24%, to 12,106.91.
Broader stock indicators also dropped. The Standard & Poor's 500 index fell 16.76, or 1.26%, to 1,314.58, while the Nasdaq composite index fell 28.06, or 1.24%, to 2,230.54, reflecting concerns about the high-tech sector following Intel's news.
Citigroup tumbled $1.74, or 7.5%, to $21.35. Washington Mutual Inc. fell $1.20 to $12.45, JPMorgan Chase & Co. skidded $1.30 to $38.51, Wachovia Corp. slipped $1.12 to $29.29 and Bank of America Corp. fell 98 cents to $38.20.
Intel, another Dow component, slipped 43 cents, or 2%, to $19.59.
"Long term, tech will remain an important sector, but it is a cyclical sector and can be very volatile," Gayle said. "If there is a belief that our economy -- and the global economy -- is going to move to a slower pace of growth, then cyclical industries like tech are going to be impacted."
Bond prices edged higher. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 3.53% from 3.56% late Monday. The dollar weakened against most other major currencies, while gold prices rose.
Light, sweet crude fell 77 cents to $101.68 a barrel on the New York Mercantile Exchange.
Declining issues outnumbered advancers by more than 3 to 1 on the New York Stock Exchange, where volume came to 417.9 million shares.
The Russell 2000 index of smaller companies fell 10.76, or 1.57%, to 673.46.
Overseas, Japan's Nikkei stock average edged up less than 0.01%. In afternoon trading, Britain's FTSE 100 fell 1.22%, Germany's DAX index fell 1.26%, and France's CAC-40 declined 1.14%.