Stocks down after tepid economic data
NEW YORK » Wall Street retreated sharply yesterday on more signs of economic weakness and executive shake-ups at two major banks -- reminders of the ongoing fallout from the credit crisis. The Dow Jones industrial average fell more than 130 points.
Two key economic reports indicated that the economy is still struggling. As expected, the Institute for Supply Management's manufacturing index for May showed its fourth straight monthly decline, while the Commerce Department said construction spending dipped in April for the sixth time in seven months due to a drop in home building.
The market drew no comfort from the ailing financial sector, either. As the financial system still contends with the aftermath of the nation's prolonged credit problems, Wachovia Corp. Chief Executive Ken Thompson was forced out yesterday, and Washington Mutual Inc. is taking the chairman role away from chief executive Kerry Killinger. Thompson has become the third CEO of a major U.S. financial institution to lose the top job as a result of the credit crisis.
In addition, British lender Bradford & Bingley issued a poor financial outlook and said it is selling a 23 percent stake to a private-equity firm, while the ratings agency Standard & Poor's Corp. downgraded Merrill Lynch & Co., Morgan Stanley and Lehman Brothers Holdings Inc. and revised Banc of America Corp. and JPMorgan Chase & Co.'s outlooks to negative.
S&P's review of the financial sector suggested there could be more write-downs coming, though likely not as large as in recent quarters, and "further sharp deterioration" in mortgage loan portfolios and residential construction."
Brian Gendreau, investment strategist for ING Investment Management, said the markets have been "hypersensitive about anything to do with credit" in recent months, and the combination of the S&P cuts, the bank news and comments in an overseas speech by U.S. Treasury Secretary Henry Paulson weighed on the market.
"Basically, he suggested that there were further problems to come in the banking and financial sector," Gendreau said. "That's just toxic for stocks."
Crude oil prices did not give investors any respite. After slipping last week and moving lower in early trading, light, sweet crude for July delivery rose 41 cents to settle at $127.76 a barrel on the New York Mercantile Exchange.
The Dow Jones industrial average fell 134.50, or 1.06 percent, to 12,503.82, after gaining last week on better-than-expected economic data and a pullback in oil prices. The blue-chip index had shed more than 200 points during the session. The S&P 500 index fell 14.71, or 1.05 percent, to 1,385.67. The Nasdaq composite index fell 31.13, or 1.23 percent, to 2,491.53.
Declining issues outnumbered advancers by about 3 to 1 on the New York Stock Exchange, where consolidated volume was 3.59 billion shares, compared to 3.72 billion on Friday.
The Russell 2000 index of smaller companies fell 7.27, or 0.97 percent, to 741.02.
The dollar traded mixed against other major currencies, while gold prices edged higher.
The 10-year Treasury note's yield, which moves opposite its price, fell to 3.97 percent from 4.06 percent late Friday.