Fear of recession keeps lid on stocks
NEW YORK » Wall Street wilted yesterday as investors awaiting next week's Federal Reserve meeting remained uneasy that fallout from the slumping housing market could bring more bank losses and pull the economy into recession.
Retreating oil prices and signs of strength in industries outside the financial sector could not keep the stock market from declining for a second straight day. Investors have entered into December, usually a winning month on Wall Street, very cautiously -- most expect to see lower rates when the Fed meets next Tuesday, but the size of the cut, if any, is under debate.
Meanwhile, JPMorgan downgraded major securities firms, warning that while further write-offs of bad mortgage debt might help the firms' stocks, longer-term concerns about their risk management might hurt their overall valuation. JPMorgan lowered its earnings estimates for some of Wall Street's biggest players: Goldman Sachs Group Inc., Lehman Brothers Holdings Inc., Merrill Lynch & Co. and Morgan Stanley.
Goldman fell $7.87, or 3.5 percent, to $219.02; Lehman fell $2.23, or 3.6 percent, to $59.15; Merrill fell $2.02, or 3.4 percent, to $57.04; Morgan Stanley fell $2.46, or 4.7 percent, to $49.82.
"There's a growing concern among investors that the economy is headed into recession," said Joseph V. Battipaglia, chief investment officer at Ryan Beck & Co. "I don't believe the Fed action is going to give them a sparkling turnaround in the economy anytime soon. I don't think it even unfreezes the financial systems."
Moody's Investors Service downgraded a batch of asset-backed securities issued by Bear Stearns Cos., indicating that credit problems are persisting despite the Fed's last two rate cuts.
Most on Wall Street expect the Fed to further reduce the target federal funds rate, which stands now at 4.50 percent.
Traders who bet on the Fed's next move were pricing in a 100 percent chance of a quarter-point cut, and a more than 60 percent chance of a half-point cut.
The Dow Jones industrial average fell 65.84, or 0.49 percent, to 13,248.73.
Broader stock indicators also dropped. The Standard & Poor's 500 index fell 9.63, or 0.65 percent, to 1,462.79, and the Nasdaq composite index fell 17.30, or 0.66 percent, to 2,619.83.
The Russell 2000 index of smaller companies fell 7.91, or 1.04 percent, to 752.06.
Declining issues outnumbered advancers by about 7 to 4 on the New York Stock Exchange, where volume came to 1.33 billion shares.
The dollar was mixed against other major currencies. Gold rose.
Bond prices also fell, giving back some of their recent sharp gains, but they remain supported by rate cut expectations. The yield on the benchmark 10-year Treasury note, which moves opposite its price, rose to 3.87 percent from 3.85 percent late Monday.
Crude oil fell $1.10 to $88.21 per barrel on the New York Mercantile Exchange amid speculation that OPEC will raise production tomorrow and after a U.S. intelligence report concluded Iran halted its nuclear weapons development program in 2003.