Markets Dow closes below 12,000 on bank jitters, oil prices June 21, 2008 By Walker Simon
* Dow closes below 12,000 for first time since March 17
* Dow and S&P fall over 10 percent this year
* Financial stocks extend tumble on write-down worries
* Credit rating warnings slam automakers GM, Ford
U.S. stocks fell sharply on
Friday with the Dow closing below 12,000 for the first time
since mid-March as rising oil prices and warnings of more
mortgage-related write-downs at banks reignited investor fears
of worse to come.
Adding to the pessimism, S&P said it may cut its ratings on
Ford Motor Co, General Motors and Chrysler LLC, citing
financial damage from high gasoline prices. GM shares fell 6.8
percent and Ford tumbled 8.1 percent.
Oil prices shot up 2 percent to $134.70 a barrel on Middle
East tensions and a weak dollar, compounding already elevated
fears about inflation and consumer spending.
The session started on a negative note, as investors dumped
commercial bank shares after Merrill Lynch said it sees
dividend cuts and the need to raise more capital at Bank of
America, Regions Financial, SunTrust Banks and Wachovia Corp.
"You have a number of issues starting with the continual
write-down of subprime loans," said Angel Mata, managing
director of listed equity trading at Stifel Nicolaus Capital
Markets in Baltimore.
"I think earnings reports for the second quarter are being
looked at the lower end of (forecast) ranges," Mata said. "The
effect of the oil situation has significantly affected the
consumer, making them spend less outside of gasoline which they
need to go from point A to point B."
The Dow Jones industrial average closed down 220.40 points,
or 1.83 percent, at 11,842.69. The Standard & Poor's 500 Index
ended 24.90 points, or 1.85 percent, lower at 1,317.93. The
Nasdaq Composite Index finished down 55.97 points, or 2.27
percent, at 2,406.09.
For the week the Dow ended 3.8 percent lower, the S&P fell
3.1 percent and Nasdaq dropped 2 percent.
The Dow closed at its second-lowest level this year and
below 12,000 for the first time since March 17.
The Dow and S&P are both down more than 10 percent so far
this year, while the Nasdaq has fallen 9.3 percent in 2008.
On Friday, all but one of the 30 Dow components ended in
the red. Coca-Cola Co was the sole gainer, rising 0.6 percent
to $53.66.
Leading the Dow percentage losers was General Motors, down
$1.00 to $13.79. Rival Ford fell 51 cents to $5.81.
Technology shares also fell broadly.
Sandisk Corp, the world's No. 1 supplier of flash
memory-based data storage cards used in music players and
mobile phones, plummeted 9.7 percent to $21.16 after Citigroup
cut its rating on the stock, citing slowing demand.
Among financial stocks, Bank of America lost 3.7 percent to
$27.10 and Wachovia fell 1.9 percent to $17.43.
Shares of Merrill Lynch and other investment banks also
took a hit as rumors circulated among traders that Merrill may
give a profit warning and take additional write-downs on its
mortgage holdings. Merrill's stock fell 4.6 percent to $35.95.
A Merrill Lynch spokeswoman declined to comment.
Also in the mortgage-related sector, two Wall Street
investment banks cut their earnings estimates for top U.S. home
finance companies Fannie Mae and Freddie Mac, citing persistent
erosion in U.S. housing and mortgage credit.
The companies account for the issuance of most
mortgage-backed bonds. Fannie Mae fell 4.8 percent to $23.81
and Freddie Mac lost 7.7 percent to $21.82.
Adding to Friday's volatility was the quarterly expiration
of June stock and stock index futures and options as investors
offset or close out their positions at the last minute, traders
said, describing what is termed as "quadruple witching."
"Quadruple witching played a big part today because we are
seeing heavy volume in the market overall as people unwind
their June futures, options and stock positions," said Joe
Kinahan, chief derivatives strategist at online brokerage
thinkorswim Inc in Chicago.
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