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Reuters
NEW YORK - Stocks dropped on Wednesday as financial shares slid when concerns resurfaced that bank profits will take much longer than expected to recover from the housing slump.
Surging oil prices and data showing a tumble in orders for U.S.-made manufactured goods revived concerns that the economy is already in recession.
Bank stocks tumbled across the board when a prominent analyst lowered her first-quarter profit forecasts for Citigroup, Bank of America Corp, JPMorgan Chase & Co, and Wachovia Corp. The S&P financial index fell 3.5 percent, marking its biggest setback after rising more than 10 percent in the last two weeks.
Oppenheimer & Co analyst Meredith Whitney said bank profits would not start growing any time soon because of fallout from what she called the worst credit cycle in generations.
Financials are down "on the combination of Citigroup, Meredith Whitney coming out with talk of more potential write-downs and a lot of profit-taking. Financials moved big the last two weeks," said Matt McCall, president of Penn Financial Group in Denver, Colorado.
The other backdrop for the drop in Citigroup's stock was news that the largest U.S. bank by assets has agreed to pay Enron creditors $1.66 billion to settle a lawsuit over its responsibility in the energy trading company's downfall.
The Dow Jones industrial average finished down 109.74 points, or 0.88 percent, at 12,422.86. The Standard & Poor's 500 Index dropped 11.86 points, or 0.88 percent, to end at 1,341.13 -- marking the broader market's first decline in four days. The Nasdaq Composite Index slumped 16.69 points, or 0.71 percent, to close at 2,324.36.
After the bell, there was unnerving news from the technology front as Oracle Corp, a major software maker, posted quarterly revenue that missed Wall Street's forecasts. Oracle shares slid 8.3 percent to $19.20 after the bell from their Nasdaq close at $20.94.
ALLERGIC TO RISK
News that banks' increasing reluctance to provide credit could derail a $20 billion leveraged buyout of U.S. radio and TV station operator Clear Channel Communications Inc added to the negative tone.
Citigroup shares were the top financial sector drag on the S&P 500, with a drop of almost 6 percent to $22.05 on the New York Stock Exchange, followed by JPMorgan, the No. 3 U.S. bank, whose stock ended down 4.2 percent at $44.11.
Shares of Bank of America, the No. 2 U.S. bank, shed 2.8 percent to $39.84, while shares of Wachovia, the fourth-largest U.S. bank, slid 6.7 percent to $28.02.
"Right now, people are still risk averse so investors would rather get out and sit on the sidelines than hold onto the financials and find out if there's another shoe to drop," McCall added.
Shares of Clear Channel plummeted 17.5 percent to $26.87 and ranked near the top of the biggest percentage losers on the NYSE.
Home builders' shares were another big drag after a report showed sales of new U.S. single-family homes fell to the slowest pace in 13 years. The Dow Jones index of U.S. home builders fell 5.9 percent.
Shares of luxury home builder Toll Brothers ended down 5.7 percent at $22.58, while those of Hovnanian Enterprises Inc slumped 9.4 percent to $11.05 and Lennar Corp fell 6.8 percent to $17.59.
CISCO SLUMPS, BUT EXXON FLIES
On the Nasdaq, Cisco Systems Inc shares were a top drag, finishing down 3.8 percent at $24.78, after Jabil Circuit Inc, a contract electronics maker that counts the network equipment manufacturer among its customers, forecast a profit shortfall. Jabil shares plunged 18.4 percent to $9.29 on the NYSE.
Energy shares climbed, however, as U.S. oil futures soared after a government report showed a sharp decline in U.S. gasoline inventories last week.
U.S. crude for May delivery jumped $4.68, or 4.62 percent, to settle at $105.90 a barrel, on the New York Mercantile Exchange.
Shares of Exxon Mobil Corp, the largest publicly traded U.S. oil company, climbed 1.2 percent to $86.26, while shares of Schlumberger Ltd, an oil services company, rose 4.7 percent to $86.52.
Trading was extremely light on the New York Stock Exchange, with about 1.43 billion shares changing hands, well below last year's estimated daily average of roughly 1.90 billion, while on Nasdaq, about 1.92 billion shares traded, below last year's daily average of 2.17 billion.
Declining stocks outnumbered advancing ones on the NYSE by a ratio of about 3 to 2 on the NYSE and by about 4 to 3 on the Nasdaq.