The Wall Street Journal-20080112-Recession Fears Pull Blue Chips Down 246-79- Dow Has Fallen 5- Since Beginning of Year- Worst Start Since -91
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Recession Fears Pull Blue Chips Down 246.79; Dow Has Fallen 5% Since Beginning of Year, Worst Start Since '91
Recession concerns swept through Wall Street, sending stock prices sharply lower while investors sought out the safety of Treasurys and gold.
"The markets are panicked about the housing market, they're panicked about credit quality and the labor market. And there are significant fears about recession and corporate profitability," said Michael Darda, chief economist at MKM Partners. "It's the sum of all fears coming together."
The Dow Jones Industrial Average lost 1.9% Friday, falling 246.79 points to finish at 12606.30. With Friday's loss, the Dow is down 5% this year, its worst start since 1991 when the economy was in recession.
The Standard & Poor's 500-stock index dropped 1.4%, or 19.31 points, to 1401.02. With Friday's drop, the year-to-date loss hit 4.6%, making it the fourth-worst start to any year in S&P 500 history, which dates back to 1928. The tech-stock-focused Nasdaq Composite Index lost 2%, or 48.58 points, to 2439.94, down 8% this year.
Even companies generally thought best able to weather a recession -- consumer staples such as Coca-Cola and Procter & Gamble -- were in the red. The concern is that higher raw-commodities costs are eating into the earnings potential of consumer goods manufacturers, said Tim Smalls, head of U.S. stock trading at Greenwich, Conn., brokerage firm Execution.
Among Dow components suffering big losses was McDonald's, off 6.6% after an independent analyst's survey showed tepid growth in the chain's same-store sales in December. Also, analysts at Friedman Billings Ramsey issued the equivalent of a "hold" rating on McDonald's shares, citing "reservations" about the fast-food giant's future results.
Other hard-hit names were credit-card companies in the wake of warnings from American Express and Capital One Financial that delinquencies among cardholders were on the rise. American Express, which said it would take a charge of $440 million before taxes in the fourth quarter to cover higher delinquencies and loan write-offs, dropped 10% to $44. That marked the stock's worst single-session performance since the day the stock markets reopened after the 2001 terrorist attacks.
However, there was a bounce for some of the financial stocks that have been hit the hardest by the downturn in the real-estate market and ensuing credit crisis. Merrill Lynch gained 5.1% and Citigroup rose 1.6%, even as those companies are widely expected to announce in the next week big losses on holdings of mortgage-related securities when they report earnings.
Gold futures briefly rallied over the psychologically important level of $900 an ounce. Gold contracts ended up $4.40, at a Comex record $896.10 an ounce Friday.
In major U.S. market action:
Stocks plunged. Total trading volume for stocks listed on the New York Stock Exchange was 4.41 billion shares, as 1,178 stocks advanced and 2,101 fell.
Bond prices rose. The 10-year note shed 21/32 point, or $6.56 for each $1,000 invested, dropping the yield to 3.808%. The 30-year bond rose 27/32 to yield 4.394%.
The dollar was mixed. Against the Japanese currency, the dollar fell to 108.99 yen, compared with 109.47 yen. The euro fell to $1.4778, compared with $1.4800.
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Peter A. McKay contributed to this article.
