Market slides after jobless claims jump
NEW YORK » Stocks sank yesterday as investors fretted over a rise in unemployment claims and the prospect of more bank failures. The Dow Jones industrial average fell 112 points, breaking its four-day winning streak.
Federal Reserve Chairman Ben Bernanke said in testimony to Congress that while large U.S. banks will likely recover from the recent credit crisis, other banks are at risk of failing. Three small U.S. banks have already failed since the summer, when the lending industry started losing billions of dollars as mortgage defaults soared.
"Implying that some banks may fail stirs concerns for any investor who's familiar with financial and economic history," said Hugh Johnson, chairman and chief investment officer of Johnson Illington Advisors. "Investors have been very edgy about credit market conditions and banks' financial conditions. Very edgy. And this doesn't remove that edginess."
Earlier, stocks had fallen in response to a Labor Department report that first-time unemployment claims rose last week by 19,000 to 373,000, the highest level since late January.
Scott Wren, equity strategist for A.G. Edwards & Sons, said he still believes there's less than a 50 percent chance of a recession, but that it's clear employers are cautious about hiring.
Following four straight days of gains in the Dow -- its longest run of gains so far this year -- the blue-chip index sank 112.10, or 0.88 percent, to 12,582.18.
Broader stock indicators also lost ground. The Standard & Poor's 500 index declined 12.34, or 0.89 percent, to 1,367.68, and the Nasdaq composite index lost 22.21, or 0.94 percent, to 2,331.57. The Russell 2000 index of smaller companies fell 10.72, or 1.50 percent, to 705.72.
Declining issues outnumbered advancers by more than 2 to 1 on the New York Stock Exchange. Consolidated volume came to 3.76 billion shares, down from 3.81 billion shares Wednesday.
Crude oil jumped $2.95 to settle at a record $102.59 a barrel on the New York Mercantile Exchange. Gold prices also spiked to an all-time trading high of $975 an ounce.
Government bonds rose as stocks slumped. The yield on the benchmark 10-year Treasury note, which moves opposite its price, tumbled to 3.67 percent from 3.85 percent late Wednesday.
Bernanke offered up some positive comments in his testimony -- that most banks will bounce back from their mortgage troubles, that inflation should ease, and that the United States is nowhere near the stagflation scenario of the 1970s. When stagflation is present, the economy remains weak as inflation accelerates.
But Wall Street was skeptical of Bernanke's fairly upbeat take on the economy -- particularly as oil and gold hit new records -- and latched onto his admission that more banks could fail.
"Bernanke is about as skillful a Fed chairman as I have seen," said Johnson, whose more than four-decade career spans six Fed chairmen. "But these times require a very, very skillful chairman. I don't believe I've seen times as challenging as these."