Credit, home data spook Wall Street
NEW YORK » Stocks tumbled yesterday as the ailing credit market and a spike in home foreclosures intensified the market's worries about a sagging economy.
Concerns about credit grew after Thornburg Mortgage Inc. and a bond fund managed by private equity firm Carlyle Group bond fund revealed troubles with investments backed by mortgages.
The entities failed to make margin calls, which are payments to guarantee much larger debt or investments. Thornburg plunged $1.75, or 51 percent, to $1.65.
"I think these are near-term, unfortunate events that if they had the luxury of time and capital they could probably weather but unfortunately with this leverage-based system we have, time is a very expensive luxury," Jack Ablin, chief investment officer at Harris Private Bank in Chicago, said in reference to the difficulties at Thornburg and Carlyle.
The genesis of the credit concerns that erupted last year -- souring mortgage loans -- dealt investors another blow after the Mortgage Bankers Association reported that home foreclosures rose to a record 0.83 percent in the fourth quarter. Worries about defaults have made lenders hesitant to extend credit, preventing the credit markets from functioning normally.
The Federal Reserve added more unwelcome housing news in reporting that Americans' debt on their homes exceeds their equity for the first time since the central bank began tracking the figures in 1945.
The Dow managed a moderate gain after a volatile session Wednesday, and had fallen in the four previous sessions.
The Dow fell 214.60, or 1.75 percent, to 12,040.39 -- almost slipping below the 12,000 level, which it briefly did in January for the first time since November 2006.
Broader indexes also retreated. The Standard & Poor's 500 index fell 29.36, or 2.20 percent, to 1,304.34, and the Nasdaq composite declined 52.31, or 2.30 percent, to 2,220.50. The Russell 2000 index of smaller companies fell 20.96, or 3.07 percent, to 662.78.
Bond prices jumped as stocks fell. The yield on the benchmark 10-year Treasury note, which moves opposite its price, sank to 3.59 percent from 3.69 percent late Wednesday.
Declining issues outnumbered advancers by nearly 9 to 1 on the New York Stock Exchange. Consolidated volume came to 4.18 billion shares, up from 4.12 billion on Wednesday.
Light, sweet crude rose to a fresh record yesterday after an unexpected decline in U.S. crude supplies and a widely anticipated decision by OPEC not to increase production. Oil shot up 95 cents to settle at a record $105.47 per barrel.
Gold -- regarded as a defensive investment -- slipped yesterday, but remains near the psychological benchmark of $1,000 an ounce.
Wal-Mart Stores Inc. reported stronger-than-expected sales for February, but some investors are worried that success at the world's largest retailer reflects increased bargain-hunting by consumers.
A retrenchment among consumers is an alarming prospect for Wall Street as consumer spending accounts for more than two-thirds of U.S. economic activity.
Wal-Mart was the only stock among the 30 that comprise the Dow industrials to advance. Its shares rose 43 cents to $49.98.