The Wall Street Journal-20080205-Dow Tumbles 108-03 Points Amid Downgrades of Banks

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Dow Tumbles 108.03 Points Amid Downgrades of Banks

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Analyst downgrades of banks and credit-card issuers pushed the stock market lower, underscoring concerns that Wall Street's mortgage- related woes aren't yet resolved.

Big declines in some of its financial components sent the Dow Jones Industrial Average down 0.85%, or 108.03 points, to 12635.16, down 4.7% this year. J.P. Morgan Chase was off 4.2%. American Express, which was among several credit-card issuers reduced to a "sell" rating by UBS, fell 3.9%.

Citing the risk of a consumer-led recession with rising unemployment and credit losses, UBS also downgraded Capital One Financial and Discover Financial Services, which fell 7.6% and 9%, respectively. Merrill Lynch downgraded Wachovia to "sell," sending the bank's shares down 8.3%.

Financial stocks have languished for months amid revelations of bad mortgage bets and concern about recession. Money managers increasingly disagree about whether the sector remains too risky or has become ripe with names poised for rebounds.

Bob Millen, chairman of Jensen Investment Management in Portland, Ore., says his company has stayed away from downtrodden financial names, such as Dow component Citigroup, although they fit certain data-based criteria Jensen uses in its initial screening of potential names to buy. "We just feel like we can't understand the business well enough," in part because of complicated mortgage investments the bank holds, Mr. Millen said. "A lot of the stocks we're looking at are still in pretty defensive sectors," like health care and consumer staples.

Randy Bateman, chief investment officer at Huntington Asset Advisors in Columbus, Ohio, believes investors have discounted the financial sector too deeply. "Everyone got punished in the initial wave of concern about what's on these companies' balance sheets," Mr. Bateman said. "As the details emerge, if some of these guys haven't had write- downs yet, you start to think it's not going to happen."

The Standard & Poor's 500-stock index, which has a heavy weighting of financial stocks, slid 1.1%, or 14.60 points, to 1380.82, off 6% in 2008. Its financial sector fell about 3%.

In economic news, the Commerce Department reported new orders at U.S. factories rose 2.3% in December, below Wall Street's expectations of 2.6%.

Strategist Al Goldman, of brokerage A.G. Edwards & Sons in St. Louis, is advising clients to keep extra cash on the sidelines as a safeguard against a drop in economic growth. "After six years of economic recovery, why not a recession?" Mr. Goldman said, referring to the last full-blown U.S. downturn, in the wake of the 9/11 attacks.

In major U.S. market action:

Stocks fell, as did bond prices. The 10-year note shed 12/32 point, or $3.75 for each $1,000 invested, pushing the yield up to 3.643%. The 30-year bond fell 1 1/32 to yield 4.374%.

The dollar was mixed. Against the Japanese currency, the dollar rose to 106.74 yen, compared with 106.59 yen Friday. The euro rose to $1.4827, compared with $1.4799.