Wednesday, December 17, 2008

Wall Street drops on financial worry

US stocks stumbled on Monday, roiled by worries about how big a bite the global financial crisis has taken from banks' profits and fallout from a massive investment fraud scheme. J.P. Morgan Chase & Co was the biggest drag on the Dow after Merrill Lynch cut the stock to an "underperform" rating and forecast a loss for the bank's fourth quarter.

Another blow to sentiment was concern about the financial sector's exposure to potential losses related to investment manager Bernard Madoff, who is accused by US authorities of masterminding a $50 billion fraud. "There will be some investors as a result of this who say, 'I'm going to put all my money in cash,'" said Tim Ghriskey, chief investment officer of Solaris Asset Management in Bedford Hills, New York.

The Dow Jones industrial average shed 65.15 points, or 0.75 percent, to end at 8,564.53. The Standard & Poor's 500 Index fell 11.16 points, or 1.27 percent, to 868.57. The Nasdaq Composite Index dropped 32.38 points, or 2.10 percent, to 1,508.34.

The Dow is down 35 percent year to date and nearly 40 percent from its record closing high on October 9, 2007. The downgrade of J.P. Morgan comes before earnings this week from two other big financial names, Goldman Sachs on Tuesday and Morgan Stanley on Wednesday. Analysts expect Goldman Sachs to report its first quarterly loss since going public in 1999. The S&P financial index fell 4 percent, with J.P. Morgan's stock down 7.5 percent at $28.63.

Goldman Sachs Group Inc shed 1.9 percent to $66.46 while Morgan Stanley slid 1.5 percent to $13.64. Technology shares also pulled the market lower after Goldman Sachs cut its rating on Apple to "neutral" and removed the iPod maker from its conviction buy list, citing falling consumer demand for its products. Apple's stock slid 3.6 percent to $94.75 on Nasdaq.

Economic data gave investors more reasons for caution. A gauge of manufacturing in New York State hit a record low in December, while homebuilder sentiment remained at record lows for the month. Investors looked ahead to an interest-rate decision from the Federal Reserve on Tuesday. The US central bank is expected to cut its benchmark fed funds rate to 0.5 percent from 1 percent in hopes of boosting the weak US economy.

The Dow Jones US Home Construction Index fell 5.5 percent a day before the US Commerce Department is expected to report another monthly drop in housing starts. An index of energy stocks slipped 0.3 percent after crude oil fell below $45 a barrel on concerns about global energy demand as major world economies struggle with recession.

When Opec ministers meet on Wednesday, they may make their deepest oil supply cut ever. Bucking the session's downtrend were shares of General Motors and Ford, which rose on hopes that a financial lifeline could still materialise. The timing and size of any US government aid package, however, were still in question.

GM's stock rose 3.6 percent to $4.08 and Ford added 4.6 percent to $3.18. Volume was modest on the New York Stock Exchange, where about 1.21 billion shares changed hands, below last year's estimated daily average of 1.90 billion. On the Nasdaq, about 1.68 billion shares traded, below last year's daily average of 2.17 billion. Decliners outnumbered advancers on both the NYSE and the Nasdaq by a ratio of about 3 to 1.

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