Stocks sank yesterday, their sixth drop in the past seven sessions, on worry that credit losses from mortgage defaults and slumping home prices will grow worse, hurting the economy and corporate profits.
Investors demonstrated a powerful aversion to risk and dumped equities in favor of the perceived safety of government bonds. U.S. Treasuries surged, sending bond yields to their lowest point in more than two years.
Financial stocks took the brunt of the selling, giving back nearly all of the ground regained in Tuesday's big rally. The worst decliners among the banks included Citigroup Inc., whose stock fell more than 4 percent, and JPMorgan Chase & Co.
Shares of home-funding providers Fannie Mae and Freddie Mac also plummeted.
Investors were troubled as J.C. Penney Co. reported a 9 percent drop in its fiscal third-quarter profit on weak sales and cut its fourth-quarter forecast, indicating that housing-market problems are taking a toll on shoppers as well. J.C. Penney fell $2.40, or 5.1 percent, to $44.33.
“The J.C. Penney comments in terms of their guidance have sort of put another nail in retail. The assumption is the consumer has given up,” said Charlie Smith, chief investment officer at Fort Pitt Capital Group in Pittsburgh. “Three-dollar to $3.20-a-gallon gas and house prices falling at 5 percent a year is really a double whammy the consumer can't overcome.”
The Dow Jones industrial average dropped 120.96 points, or 0.91 percent, to 13,110.05. Broader stock indicators also declined. The Standard & Poor's 500 index fell 19.43 points, or 1.32 percent, to 1,451.15. The Nasdaq composite index lost 25.81 points, or 0.98 percent, to 2,618.51. The Russell 2000 index of smaller companies fell 10.87 points, or 1.39 percent, to 771.60.
Government bond prices rose. The yield on the 10-year Treasury note, which moves opposite its price, slid to 4.14 percent from 4.25 percent Wednesday.
Oil prices slipped on the New York Mercantile Exchange, where a barrel of light, sweet crude fell 66 cents to settle at $93.43 after domestic crude-oil and gasoline inventories rose more than expected last week and OPEC forecast that fourth-quarter demand for oil would be less than expected. Gold prices fell as the dollar strengthened versus the euro.
In economic news, the Labor Department said yesterday that its Consumer Price Index rose 0.3 percent in October on high energy and food costs, in line with September's increase and analysts' forecast.
Declining issues outnumbered advancers by more than 3-to-1 on the New York Stock Exchange, where consolidated volume came to 3.81 billion shares compared with 3.88 billion shares traded Wednesday.
Major stock indexes overseas slumped. Britain's FTSE 100 declined 1.13 percent, Germany's DAX index fell 1.49 percent and France's CAC-40 shed 0.93 percent.
Japan's Nikkei stock average closed down 0.67 percent, and Hong Kong's Hang Seng index fell 1.42 percent.
