Posted on: Thursday, November 8, 2007
Stocks buckle as bad news piles up
Advertiser News Services
NEW YORK — Battered by a barrage of bad news from the energy pits, currency trading desks and balance sheets of top U.S. banks, the Dow Jones industrials plunged 361 points yesterday — the index's fifth-worst point drop of the year and its second loss of more than 300 points in the past five sessions.
The stock market, often noted for its resiliency, is suddenly finding it difficult to put an optimistic spin on a lethal convergence of negatives: still-unquantifiable losses in the banking sector from the housing bust and credit crunch; the inflationary implications of a steep drop in the U.S. dollar; and fears oil will soon fetch $100 a barrel.
Here's what's spooking markets:
The credit crisis. Wall Street's biggest firms are reeling from the losses of bad bets on securities tied to risky mortgages. The losses reported recently have been huge — about $8 billion for Merrill Lynch, a coming write-off from Citigroup of $8 billion to $11 billion and $3.7 billion announced yesterday by Morgan Stanley.
There's no shortage of speculation as to who will fess up next and how big the losses will be. Those fears are causing financial stocks, the market's biggest sector, to sell off sharply.
A plunging greenback. The dollar hit another record low against the euro yesterday. China has signaled that it may slow its purchase of U.S. assets. "The Dow Jones is measured in dollars, not bananas," said Peter Schiff, president of Euro Pacific Capital. "As the dollar loses value, U.S. stocks lose value."
Oil near $100. A barrel topped $98 yesterday before falling back to close down 33 cents at $96.37. High energy prices could exacerbate inflation, but investors are more concerned about the negative impact on consumer spending. That is cutting into profit projections. Fourth-quarter earnings growth is now estimated at 6.1 percent, down from 11.5 percent on Oct. 1.
