NEW YORK (Reuters) – Stocks tumbled on Wednesday, dragging the S&P 500 into a bear market, as worries about more credit losses hurt financial companies and Cisco Systems led technology shares lower after its CEO raised fears of an extended economic downturn.
The S&P closed 20 percent below its all-time high set in October, making it the last of the three major U.S. stock indexes to fall into a bear market. Stocks have been roiled for months by the credit crisis and a severe U.S. economic slowdown.
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In the latest news to scare the market, Cisco’s (CSCO.O: Quote, Profile, Research, Stock Buzz) John Chambers told Reuters that customers of the company, which makes Internet infrastructure, see the economy picking up early in 2009 rather than later this year. At least two brokerages also cut their price targets on the stock.
Fannie Mae (FNM.N: Quote, Profile, Research, Stock Buzz) and Freddie Mac (FRE.N: Quote, Profile, Research, Stock Buzz) dropped sharply as some investors worried that the two pillars of the U.S. housing market will need to raise billions of dollars in additional capital through stock sales, diluting the holdings of current investors.
Merrill Lynch (MER.N: Quote, Profile, Research, Stock Buzz) shares fell more than 9 percent, after Fitch Ratings said it may cut the U.S. investment bank’s debt rating, given expected ongoing write-downs and diminished prospects for earnings.
“There is uncertainty about financials as we’re going into the earnings season about what write-offs and capital raising might be needed,” said Bucky Hellwig, senior vice president at Morgan Asset Management, in Birmingham, Alabama.
“There is also concern that as the earnings reports come out, that the projections for future performance for technology may not be as strong due to the weakness in economy.”
All three major stock indexes fell more than 2 percent: The Dow Jones industrial average .DJI shed 236.77 points, or 2.08 percent, to 11,147.44, while the Standard & Poor’s 500 Index .SPX tumbled 29.01 points, or 2.28 percent, to 1,244.69. The Nasdaq Composite Index .IXIC fell 59.55 points, or 2.60 percent, to close at 2,234.89.
On the Nasdaq, Cisco shares fell 5.7 percent to $21.58. UBS said it expects enterprise spending to remain challenging. Shares of other big technology companies also fell, with chip-maker Intel (INTC.O: Quote, Profile, Research, Stock Buzz) down 5.3 percent at $19.81.
Concerns about the economy also hit big manufacturers such as General Electric (GE.N: Quote, Profile, Research, Stock Buzz) and 3M Co (MMM.N: Quote, Profile, Research, Stock Buzz), both with losses of more than 3 percent. GE shares fell 3.1 percent to $27.19 on the New York Stock Exchange, while shares of 3M dropped 3.4 percent to $68.64.
Even Alcoa Inc (AA.N: Quote, Profile, Research, Stock Buzz) was unable to hold on to gains a day after the aluminum producer posted second-quarter results that beat analysts’ estimates. Shares fell 2.4 percent to $31.54.
Freddie Mac shares slid 23.8 percent to $10.26 while Fannie Mae lost 13.1 percent to $15.31.
The S&P financial sub-index dropped 5.2 percent, its biggest one-day decline in more than six years.
Bank of America’s chief executive said it may feel to some people for the next year as if the economy is in recession.
Analysts are now expecting a 13.5 percent drop in second-quarter earnings of S&P 500 companies, according to the average estimate of analysts polled by Thomson Reuters. That’s compared to the 2 percent drop they were expecting in April.
Trading volume was moderate on the New York Stock Exchange, with about 1.49 billion shares changing hands, below last year’s estimated daily average of roughly 1.90 billion, while on Nasdaq, about 2.28 billion shares traded, above last year’s daily average of 2.17 billion.
Declining stocks outnumbered advancing ones by about 2 to 1 on both the NYSE and the Nasdaq.
(Editing by Jan Paschal)
By Kristina Cooke
Wed Jul 9, 2008