Stocks fall on bleak corporate forecasts
Stocks fall on bleak corporate forecasts
By MADLEN READ, AP Business Writer
9 minutes ago
Stocks tumbled Tuesday as troubling outlooks for Citigroup Inc. and Intel Corp. again underscored for investors that U.S. companies, led by the financial sector, are getting hit by a weak economy. The major indexes each gave up more than 1 percent, with the Dow Jones industrial average falling more than 170 points.
Merrill Lynch has reduced its full-year earnings prediction for Citigroup because it believes the bank could write down another $18 billion of debt tied to souring mortgages, according to Dow Jones Newswires. The stock, one of the 30 companies in the Dow, fell to new nine-year lows, and took other financial stocks down with it.
Intel, meanwhile, lowered the forecast for its first-quarter profit margins, a move that heightened worries about the technology industry. Chipmakers are considered an early warning system for troubles throughout the sector.
Wall Street remained anxious amid a series of speeches from Federal Reserve officials. Fed Chairman Ben Bernanke warned in a speech in Florida early Tuesday that more home foreclosures are coming, while Vice Chairman Donald Kohn said in prepared remarks to U.S. senators that banks likely face more asset write-downs but their cash levels are sound.
The disappointing earnings forecasts and comments from central bank officials come as Wall Street tries to determine whether the economy is in recession â€” and whether investors have been too optimistic about corporate profits bouncing back in the second half of the year.
"The soft economy creates a difficult profit environment for most firms. And with investors' skepticism at high levels, they are quick to sell," said Alan Gayle, senior investment strategist at Trusco Capital Management.
The Dow Jones industrial average fell 176.82, or 1.44 percent, to 12,082.08.
Broader stock indicators also lost ground. The Standard & Poor's 500 index fell 17.27, or 1.30 percent, to 1,314.07, while the Nasdaq composite index declined 25.80, or 1.14 percent, to 2,232.80, reflecting concerns about the high-tech sector following Intel's news.
Citigroup tumbled $1.16, or 5.1 percent, to $21.92. The head of a government-owned investment firm in Dubai added to investors' unease over Citigroup by saying it would take more than the billions already pumped into the company by regional sovereign funds to alleviate Citi's financial troubles.
Financial companies are going over their books to determine what loans remain sound and what debt might be in trouble because it is backed by now souring home loans and other consumer debt. A precipitous slowdown in the housing market revealed the fallacy upon which many loans were made â€” the belief that home prices would continue to rise apace and that consumers could always wipe away their debts by refinancing.
Other banks declined alongside Citi. Washington Mutual Inc. fell 45 cents to $13.20, JPMorgan Chase & Co. skidded $1.25 to $38.56, Wachovia Corp. fell 96 cents to $29.45 and Bank of America Corp. fell 93 cents to $38.25.
Intel, another Dow component, slipped 29 cents to $19.72.
"Long term, tech will remain an important sector, but it is a cyclical sector and can be very volatile," Gayle said. "If there is a belief that our economy â€” and the global economy â€” is going to move to a slower pace of growth, then cyclical industries like tech are going to be impacted."
Bond prices edged higher. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 3.51 percent from 3.56 percent late Monday. The dollar weakened against most other major currencies, while gold prices rose.
Light, sweet crude fell $2.43 to $100.02 a barrel on the New York Mercantile Exchange.
Declining issues outnumbered advancers by more than 1to 1 on the New York Stock Exchange, where volume came to 628.5 million shares.
The Russell 2000 index of smaller companies fell 8.20, or 1.20 percent, to 676.02.
Overseas, Japan's Nikkei stock average edged up less than 0.01 percent. Britain's FTSE 100 fell 0.87 percent, Germany's DAX index fell 2.17 percent, and France's CAC-40 finished down 1.41 percent.
Copyright Â© 2008 The Associated Press.