Not a good day on Wall Street...
U.S. Stocks Tumble on Concern Defaults May Spread; Apple Drops
By Lynn Thomasson
A display of Texas Instruments Inc.'s calculators July 24 (Bloomberg) -- The U.S. stock market tumbled the most in four months after Countrywide Financial Corp.'s earnings prompted concern the housing crisis is spreading.
Shares of homebuilders sank to their lowest since 2003 and financial companies dropped after Countrywide, the largest U.S. mortgage lender, said more borrowers are falling behind on home-equity loan payments. DuPont Co., the third-biggest U.S. chemical maker, posted its steepest decline in two years after sliding home sales cut demand for paint and countertops.
The retreat accelerated after Countrywide Chief Executive Officer Angelo Mozilo said ``difficult'' conditions caused by subprime mortgage defaults may persist, and demand is unlikely to rebound until 2009. The Dow Jones Industrial Average plunged 226 points, sparking a sell-off from Brazil to Canada.
``What's hanging over stocks is concern that the housing and subprime demise will spread,'' said John Davidson, who helps oversee more than $11 billion as president of PartnerRe Asset Management in Greenwich, Connecticut. ``Earnings are not as strong as they were previously and there aren't as many positive surprises.''
The housing slump has weighed on companies reporting second-quarter earnings this month, hindering profits at Caterpillar Inc., Wachovia Corp. and Burlington Northern Santa Fe Corp. Speculation that demand for Apple Inc.'s iPhone is slowing and a decline in energy shares after oil decreased a third day also weighed on the market.
The Standard & Poor's 500 Index lost 30.53, or 2 percent, to 1511.04, its steepest retreat since March 13. The Dow average decreased 226.47, or 1.6 percent, to 13,716.95. The Nasdaq Composite Index slid 50.72, or 1.9 percent, to 2639.86.
Bond Rally
The rout in stocks boosted Treasury prices as investors sought the relative safety of U.S. debt. The yield on the benchmark 10-year note fell 3 basis points, or 0.03 percentage point, to 4.92 percent. Yields move in the opposite direction as prices.
Financial shares in the S&P 500 slid for a fifth day, the longest losing streak since February and the lowest level since September.
Countrywide slumped $3.56, or 10 percent, to $30.50 for the steepest drop in the S&P 500 and its biggest decline since October 2004. The lender said second-quarter net income was 81 cents a share compared with $1.15 a share a year earlier. It was expected to earn 90 cents, the average of 13 analyst estimates compiled by Bloomberg.
`Almost Like Never Before'
``We are experiencing home price depreciation almost like never before, with the exception of the Great Depression,'' CEO Mozilo said of the housing slump during a three-hour conference call with investors.
Other financial firms dropped. JPMorgan Chase & Co., the third-biggest U.S. bank, lost $1.81 to $45.34, reaching the lowest price since September 2006. Citigroup Inc., the largest U.S. bank, fell $1.55 to $49.31.
Countrywide is preparing for an increase in missed payments in prime loans, or those granted to borrowers with good credit histories. In the second-quarter, overdue payments cut profits by $388 million. The company set aside almost five times as much money for loan losses this quarter compared with a year earlier. Of the $292.9 million earmarked to cover losses, $181 million is related to prime home-equity loans.
DuPont, Apple
DuPont fell $3.36, or 6.3 percent, to $49.90 for the steepest decline in the Dow average. The company said earnings in the second quarter were $1.04 a share, missing the $1.07 a share average analyst estimate.
DuPont's ``relation to homebuilders and the consumer is probably making people nervous,'' said James Gaul, who helps oversee $2.4 billion at Boston Advisors LLC in Boston. ``It's a big name and everybody knows it.''
Homebuilders in S&P indexes declined 4.1 percent as a group as all 16 companies retreated. Lennar Corp., the largest U.S. homebuilder, dropped 39 cents to $31.93. D.R. Horton Inc., the second-largest, fell 88 cents to $17.50.
Beazer Homes USA Inc. slumped $1.97 to $16.79. The homebuilder said the U.S. Securities and Exchange Commission has started a formal investigation to see if anyone at the company or an associated entity violated securities laws.
Apple slumped $8.81, or 6.1 percent, to $134.89, its biggest drop since January. Activations of the company's new iPhone by AT&T Inc. in the first two days of shipment are a ``disappointment relative to Street thinking,'' said Piper Jaffray analyst Gene Munster.
Demand for the iPhone has had a ``significant decline'' in the past 10 days, according to CIBC World Markets. ``Among the stores we visited, most visitors were not looking at the device, and only a very small subset bought it,'' wrote CIBC analyst Ittai Kidron.
Volatility Spike
A measure of stock-market volatility rose to the highest since June 26. The Chicago Board Options Exchange Volatility Index rose 10 percent to 18.55. Higher readings in the so- called VIX, derived from the prices paid for options on the Standard & Poor's 500 Index, indicate traders expect bigger stock-market swings in the next 30 days.
In Brazil, the Bovespa Index of the most-traded stocks on the Sao Paulo exchange fell 2242.20, or 3.9 percent, to 55,794.57. Mexico's benchmark Bolsa index declined 706.28, or 2.2 percent, to 31,462.15. The Canadian S&P/TSX Composite Index fell 400.17, or 2.8 percent, to 14,068.16.
About 14 stocks fell for every one that rose on the New York Stock Exchange. About 2 billion shares changed hands on the Big Board, 27 percent more than the three-month average.
American Express Co. had the second-steepest drop in the Dow average, slipping $3.49, or 5.4 percent, to $61.17. The third-largest credit-card network said net income was 88 cents a share. Analysts Marco Villegas and George Sacco at JPMorgan Chase & Co. said profit missed their target because of one-time costs as well as higher marketing and interest expenses.
Wyeth
Wyeth dropped the most in five years, plunging $5.70, or 10 percent, to $50.30. The U.S. Food and Drug Administration withheld approval of Pristiq, the first hormone-free menopause pill, and asked the drugmaker for more data on the medicine's heart and liver effects.
Texas Instruments Inc. slid $1.72 to $36.46. The world's biggest maker of mobile-phone chips said second-quarter revenue fell 7.4 percent to $3.42 billion, trailing the average projection of $3.45 billion from a Bloomberg survey of analysts.
Energy shares in the S&P 500 lost 3 percent, the biggest drop since February. Crude oil declined for a third day, losing $1.33 to $73.56 a barrel in New York, on speculation that U.S. refiners are boosting fuel production.
Exxon Mobil Corp., the world's biggest oil company, slipped from a record, falling $2.60 to $90.84. ConocoPhillips, the second-largest U.S. refiner, declined for a fourth day, slumping $3.30 to $82.33.
Supervalu, USG
Supervalu Inc., the second-largest U.S. supermarket chain, dropped $3.68, or 7.8 percent, to $43.70, the most in almost two years. The company, which bought Albertson's last year, said sales at acquired stores open at least a year rose 1.7 percent, compared with 1.8 percent in the fourth quarter. Sales at existing locations that Supervalu already owned fell 0.4 percent.
USG Corp. fell for a sixth day, losing $3.10, or 6.7 percent, to $43.09. Profit at the largest maker of gypsum wallboard in North America was below analysts' estimates. Net income dropped to 56 cents a share from $3.03 a year earlier. Six analysts polled by Bloomberg estimated earnings of 69 cents.
Lockheed Rally
Lockheed Martin Corp. jumped the most since 2003, gaining $3.57 to $103.09. The world's largest defense contractor boosted its yearly earnings forecast to a range of $6.65 to $6.80 a share from $6.20 to $6.35 a share on an improved outlook for aircraft and space sales.
Netflix Inc. fell $1.20 to $16.07. The largest provider of mail-order movie rentals reported its first drop in customers and lowered its annual profit and subscriber forecasts. Separately, Lehman Brothers reduced the shares to ``equal weight'' from ``overweight.'' The stock's rating was also cut to ``neutral'' at Cowen & Co. and to ``hold'' at Needham & Co.
In currency markets, the dollar declined to a record against the euro on speculation the rout in subprime mortgages is spreading, slowing U.S. growth.
The Russell 2000 Index, a benchmark for companies with a median market value of $695 million, lost 2.8 percent to 811.86, the biggest drop since February. The Dow Jones Wilshire 5000 Index, the broadest measure of U.S. shares, declined 2 percent to 15,244.07 for the steepest drop in four months.
To contact the reporter on this story: Lynn Thomasson in New York at lthomasson@bloomberg.net .
Last Updated: July 24, 2007 17:11 EDT
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