The Wall Street Journal-20080118-More Zeroes for Investors- As Subprime Write-Downs Top --36-100 Billion- Dow Industrials Drop 306-95 Points- Small Investors Brace for More

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More Zeroes for Investors; As Subprime Write-Downs Top $100 Billion, Dow Industrials Drop 306.95 Points; Small Investors Brace for More

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A week of multibillion-dollar losses by Wall Street rattled investors, who instead of thinking the worst is over, sold off stocks in the belief that there is more damage to come from the subprime- mortgage crisis.

Economically sensitive small-company stocks dropped into bear-market territory, and technology stocks are close to crossing that line.

"There was very little reason to stand up and buy," said Marc Pado, U.S. market strategist at Cantor Fitzgerald.

The Dow Jones Industrial Average shed 306.95 points, or 2.5%, to close at 12159.21 as all 30 components fell. It is now down 8.3% since the start of the year and 14% off its record close Oct. 9.

The selling has pushed prices for small-company and transportation stocks down more than 20% from their most recent peaks, the traditional definition of a bear market. The Russell 2000 small-stock index fell to 680.57, off 20% from its peak this past July. The Dow Jones Transportation Average is down 24% from its peak of 5446.49, also hit last summer.

The technology-stock-focused Nasdaq Composite Index, which had been a strong performer in 2007, lost 47.69 points, or 2%, to 2346.90 and is now 18% below its multiyear close high of 2859.12, hit on Oct. 31. It is off 12% so far this year.

Some individual investors are bracing for more bad news. "I think we've got another 1,000-point decline," said Roy Steiman, 59 years old, a doctor in Poughkeepsie, N.Y. While the market's declines have been painful to watch, he has been trying looking for opportunities. A few weeks ago, he bought 100 shares of Bank of America, whose stock price has been hit with mortgage-related woes. Mr. Steiman plans to buy another 100 shares, attracted by the company's dividend yield, which is currently more than 6%. "If Bank of America fails, we're in big trouble," he said.

Barron Segar, 44, who works in Atlanta for a nonprofit group, said, "I don't even want to go to my computer" on days like yesterday. Mr. Segar has 30% of his portfolio in cash, part of which came when he sold an emerging-market mutual fund last week. He said he is comfortable with his asset allocation, and plans to use the cash to buy funds that have been on his watch list and have gotten cheaper during the downturn.

However, he worries for his 76-year-old father, whose portfolio is managed by a bank trust department and is heavy on financial stocks. "My dad is going to fall over when he gets his next statement," Mr. Segar said. He added, "I think the biggest lesson that investors are learning is that there is no safe haven."

Financial stocks remained at the center of the damage. The financial sector of the Dow Jones Wilshire 5000 index is now down 30% from highs hit last February. Especially hard-hit yesterday were shares of bond insurers, who are facing serious financial strains from having provided guarantees for now-troubled mortgage-backed securities.

Ambac Financial skidded nearly 52%, and MBIA shares fell 31% after Moody's Investors Service said it is considering downgrades of the bond insurers' triple-A credit ratings.

Downgrades would have wide ramifications for the entire financial sector. The insurers guarantee many structured mortgage securities, such as collateralized debt obligations, or CDOs, and tax-exempt bonds issued by local governments.

Now that the housing market is declining, insurers could be on the hook for billions of dollars of claims on mortgage-related bonds. And if the insurers lose their ratings, the value of their guarantees and the CDOs would fall, causing big losses for banks and asset managers.

Investors also have been disappointed as financial companies such as Citigroup and Merrill Lynch have reported write-downs of mortgage- related losses but provided little evidence they see a light at the end of the tunnel.

"They're essentially thinking that these guys are going to come back to them in 90 days with more losses to report," when current home prices get factored into first-quarter results, said James Bianco, president of Bianco Research LLC, a market-research firm in Chicago.

The Standard & Poor's 500-stock index, which has a heavy weighting of financial stocks, fell 2.9%, or 39.95 points, to 1333.25, off 9.2% so far this year and 15% below its record close in October.

Adding to the gloom was a big decline in the Federal Reserve Bank of Philadelphia's manufacturing index, which is often seen as providing clues about the direction of the national economy.

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Peter A. McKay contributed to this article.

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