Pessimism in markets fueled by oil price dip


POSTED: Tuesday, January 13, 2009

NEW YORK » Wall Street extended last week's slide yesterday as investors worried that the quarterly results companies begin releasing this week will signal the economy is in worse shape than feared.

Oil prices helped fuel the pessimism, tumbling 8 percent to a new low for the year as investors bet economic weakness would curb demand. Wall Street normally welcomes falling oil as a boost for consumers who pay less to put gas in their car, but steep drops can touch off deeper fears about the overall economy.

Wall Street is expecting fourth-quarter and full-year earnings will be particularly bleak, especially after several companies warned last week that they are being hit hard by the recession. Aluminum producer Alcoa Inc., which last week announced it would slash production, fell again yesterday after an analyst lowered his rating on the stock. Alcoa said after the market closed that it lost $1.19 billion during its fourth quarter as demand for aluminum plunged.

Financial stocks also declined as investors looked to Citigroup Inc. and Morgan Stanley, which could announce a deal as soon as tomorrow to combine their brokerage operations. The potential tie-up underscores the troubles some banks are still having with tattered balance sheets, and a prominent analyst said Citigroup might still need to raise cash. Comments from President-elect Barack Obama that he would consider using some of the remaining money from the government's $700 billion bailout fund added to investors' nervousness about the financial sector.

“;I think that the biggest concern right now is the economy and whether this thing is going to get worse or it's going to get better,”; said Bernie McGinn, chief executive of McGinn Investment Management.

The intensity of the fear that permeated the market and provoked the heavy selling of September, October and November has lessened, McGinn said, but investors are still hesitant to flood back into the market. Monday's decline came on light volume, indicating an absence of buyers, not a rush of sellers.

The Dow Jones industrial average fell 125.21, or 1.46 percent, to 8,473.97 after being down as much as 178 in the final hour of trading.

Broader stock indicators also declined. The Standard & Poor's 500 index fell 20.09, or 2.26 percent, to 870.26, and the Nasdaq composite index fell 32.80, or 2.09 percent, to 1,538.79.

The Russell 2000 index of smaller companies fell 12.50, or 2.60 percent, to 468.80.

Declining issues outpaced advancers by nearly 4 to 1 on the New York Stock Exchange, where volume came to 1.31 billion shares compared with 1.16 billion traded Friday.

Bond prices were mixed yesterday. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 2.31 percent from 2.40 percent late Friday. The yield on the three-month T-bill, considered one of the safest investments, was slightly lower from Friday at 0.06 percent.

The dollar was mixed against other major currencies, while gold prices fell.

Light, sweet crude fell $3.24 to settle at $37.59 a barrel on the New York Mercantile Exchange.

Among stocks, Alcoa fell 75 cents, or 6.9 percent, to $10.06. Chevron Corp. fell $2, or 2.8 percent, to $70.82 on the decline in oil.

Citigroup dropped $1.15, or 17 percent, to $5.60, after falling as much as 20 percent on the day.

Morgan Stanley fell 27 cents, or 1.4 percent, to $18.79.