Dow hits 4-month low
Dow and Nasdaq end lower for fifth straight session on revived worries about credit and mortgage market, and talk of more trouble for Countrywide Financial.
NEW YORK (CNNMoney.com) -- Stocks tumbled Wednesday, with the Dow industrials closing at a four-month low as talk of more trouble for lender Countrywide Financial revived worries about the credit and mortgage markets.
The Dow Jones industrial average (down 167.45 to 12,861.47, Charts) fell 1.3 percent, closing at the lowest point in nearly four months. The broader S&P 500 (down 19.84 to 1,406.70, Charts) index lost 1.4 percent, erasing all of its 2007 gains. The tech-fueled Nasdaq Composite (down 40.29 to 2,458.83, Charts) index lost 1.6 percent.
Treasury prices rose, while the dollar was mixed versus other major currencies. Gold prices were little changed and oil prices jumped.
The Dow and Nasdaq have now fallen for five sessions straight, while the S&P 500 has slipped for four of the last five sessions as investors have backed out of stocks on worries about the mortgage and credit markets.
"Earnings have been good, economic news has been mostly good, but you have this liquidity crisis," said Donald Selkin, director of research at Joseph Stevens.
"What can you say? I think at this point the Fed has to step in and do something to restore confidence," Selkin said, referring to speculation that the central bank could take bigger steps to soothe markets, perhaps ahead of the next policy meeting on September 18.
However, after the close, St. Louis Fed president William Poole said that it would not be desirable for the Fed to act before the next meeting. Poole, a voting member of the Fed's policy-setting committee, said that the turmoil in the markets has not spread to the economy.
What the central bank has been doing is infusing additional funds into the banking system. Earlier, Fed officials said the central bank had added an additional $7 billion of temporary reserves to the banking system, following an infusion of $38 billion on Friday.
Stocks briefly attempted to rise Wednesday morning, thanks to a mild read on inflation and other upbeat economic news, however, any such attempt was short lived. The major gauges hit session lows in the last hour of trading in response to a steep decline in Countrywide Financial (down $3.17 to $21.29, Charts, Fortune 500) shares.
The leading U.S. mortgage lender had initially declined modestly in the morning after Merrill Lynch downgraded it to "sell" from "buy" on worries about the mortgage market. However, declines accelerated in the late afternoon on additional worries about its future.
On Tuesday, Countrywide said that foreclosures and delinquencies rose in July to their highest level in several years.
The Dow has lost more than 1,100 points, or over 8 percent, since hitting an all-time high above 14,000 almost a month ago. The S&P 500 has fallen more than 9 percent since hitting its all-time high around the same time. The Nasdaq has fallen 9.6 percent from its 2007 high.
And the market probably has further to fall before it can move back higher, analysts argue.
"I think we're in the midst of a correction and that we have a bit more to go on the downside," said Douglas Roberts, chief investment strategist for Channel Capital Research. "But it's not unusual for stocks to pull back a bit after a big run up," he said.
Selkin said that maybe after the major gauges have fallen about 10 percent off the highs, that may be the point where some investors will step back in.
"As for the longer term, I don't think this is the start of a bear market," Roberts said.
In other news, an industry report showed that the price of a typical home in the United States continues to drop, but at a slower pace. A separate report showed that homebuilder confidence is at a 16-year low.
Blue-chip declines were broad based with 29 out of 30 Dow components tumbling, led by Alcoa (down $1.16 to $33.70, Charts, Fortune 500), Caterpillar (down $1.94 to $74.84, Charts, Fortune 500), General Motors (down $1.53 to $31.54, Charts, Fortune 500), Honeywell (down $1.65 to $54.72, Charts, Fortune 500), Hewlett-Packard (down $1.13 to $46.15, Charts, Fortune 500) and Intel (down $0.58 to $23.22, Charts, Fortune 500).
Spiking oil prices sent airline, trucker and railroad stocks lower, causing the Dow Jones Transportation (down 157.93 to 4,692.32, Charts) average to give up 3.3 percent.
Applied Materials (down $0.88 to $20.36, Charts, Fortune 500) slipped 4.1 percent after the chip gear maker said late Tuesday that current-quarter orders and revenue would fall from the last quarter. That overshadowed the company's otherwise upbeat quarterly sales and earnings report.
Among gainers, Thornburg Mortgage (up $2.95 to $10.56, Charts) bounced back after sliding 47 percent on Tuesday on worries about the mortgage lender's future. The stock recovered after the company's CEO said Thornburg has no plans to file for Chapter 11 bankruptcy protection.
Shares of Accredited Home Lenders (up $0.60 to $6.10, Charts) jumped after private equity firm Lone Star said it will extend its offer for the struggling subprime mortgage lender. On Monday, Accredited said it had sued Lone Star to force it to complete the proposed $400 million takeover.
Market breadth was negative. On the New York Stock Exchange, losers beat winners by five to one on volume of 1.99 billion shares. On the Nasdaq, decliners topped advancers by seven to three on volume of 2.34 billion shares.
On the upside: the July consumer price index (CPI) rose modestly, as expected, in terms of both overall and core inflation; the NY Empire State index, a regional manufacturing report, was stronger than expected; July industrial production and capacity utilization both increased, as did net foreign purchases.
U.S. light crude oil for September delivery rose 95 cents to settle at $73.33 a barrel on the New York Mercantile Exchange, gaining after a weaker-than-expected weekly oil inventories report and amid worries about a tropical storm approaching the Texas coast.
COMEX gold for December delivery ended unchanged at $679.70 an ounce.
Treasury prices inched higher, lowering the benchmark 10-year note yield at 4.71 percent from 4.72 percent late Tuesday. Treasury prices and yields move in opposite directions.
In currency trading, the dollar rose versus the euro and fell versus the yen.