Stocks slide as credit woes resume
Major gauges give up neutral stance, turn negative in afternoon trade as investors step back a bit after Friday's big rally.
NEW YORK (CNNMoney.com) -- Stocks fell Monday afternoon, led by bank and energy stocks, after a choppy morning in which bets that the Federal Reserve will cut interest rates next month vied with continued uncertainty about the credit and mortgage markets.
The Dow Jones industrial average (Charts) lost 0.4 percent almost 3 hours into the session, while the broader S&P 500 (Charts) index lost 0.7 percent. The tech-fueled Nasdaq Composite (Charts) index lost 0.5 percent.
Stocks jumped Friday after the central bank cut the discount rate - the rate the Fed charges banks for temporary loans - by a half-percentage point to 5.75 percent. Although it did not cut the more widely-watched fed funds rate, which affects consumer loans, the move nonetheless soothed worries about the credit and mortgage markets that have roiled Wall Street for weeks.
Additionally, the move raised bets that the Fed will cut the fed funds rate at the Sept. 18 policy meeting. On Monday, the central bank said it had added another $3.5 billion to the banking system overnight, extending its recent run of infusing cash into the system, in tune with central banks worldwide.
However, credit worries remain in place and after a mixed morning on Wall Street, stocks turned lower at midday, led by financial and other credit-sensitive issues.
"As long as the Federal Reserve and other central banks worldwide can keep the liquidity flowing, the crisis for stocks will be limited," said Robert Loest, portfolio manager at Integrity Funds. "The fallout for the housing market will be longer term."
"If investors can wait out a few more weeks, I think conditions will improve," Loest said.
He said that for the time being, investors should stay away from any stocks that are banking, housing or consumer related.
Financial stocks American Express (down $0.45 to $58.44, Charts, Fortune 500), Citigroup (down $0.48 to $48.33, Charts, Fortune 500) and JP Morgan Chase (down $1.19 to $45.82, Charts, Fortune 500) were among the Dow's biggest decliners. Other big losers included Hewlett-Packard (down $1.11 to $46.04, Charts, Fortune 500) and Exxon Mobil (down $0.95 to $83.19, Charts, Fortune 500).
Exxon declined alongside other energy sector stocks, in tandem with a nearly 2 percent drop in the price of oil.
In other news, Countrywide Financial (down $1.53 to $19.90, Charts, Fortune 500) has reportedly started laying off employees, in an effort to cut costs amid its ongoing credit crunch, the Wall Street Journal reported. Shares of the troubled mortgage lender inched higher Monday morning.
Fellow mortgage lender Thornburg Mortgage (down $1.53 to $13.51, Charts) said it sold over 35 percent of its assets and reduced its borrowing to lower its risk, sending shares more than 11 percent lower.
Market breadth was mixed. On the New York Stock Exchange, losers and winners were roughly even on volume of 625 million shares. On the Nasdaq, decliners topped advancers four to three on volume of 720 million shares.
In economic news, the July index of Leading Economic Indicators (LEI) rose 0.4 percent, in line with estimates, after falling 0.3 percent in June.
U.S. light crude fell $1.49 to $70.49 a barrel on the New York Mercantile Exchange, sliding on signs that Hurricane Dean is unlikely to disrupt refining centers in the Gulf of Mexico.
COMEX gold for December delivery rose 70 cents to $667.50 an ounce.
Treasury prices gained, lowering the benchmark 10-year note yield to 4.63 percent from 4.67 percent late Friday. Bond prices and yields move in opposite directions.
In currency trading, the dollar was little changed versus the euro and gained versus the yen.