Stocks fall amid credit concerns
NEW YORK – Wall Street pulled back in erratic trading Monday as investors grew more concerned about a deteriorating housing market and the widening impact of soured debt after Citigroup Inc. warned it plans to book $8 billion to $11 billion in additional losses.
Citi’s expected losses came on top of the $6.5 billion in asset markdowns and other credit-related losses the company recorded in the third quarter. The re-emergence of credit concerns – like those that pummeled Wall Street this summer – comes as the market also contends with concerns about housing and the health of consumer spending, and with rising expectations that the Federal Reserve is leaning away from cutting interest rates when it meets next month.
Meanwhile, a central banker’s warning Monday that the subprime mortgage market will likely deteriorate further added to the pressure on stock prices. Fed Gov. Randall Kroszner told the Consumer Bankers Association Fair Lending Conference in Washington that “conditions for subprime borrowers have the potential to get worse before they get better.”
The problems may be spreading. A Federal Reserve survey of banks showed that lenders are making it harder to get a home loan, even for borrowers with good credit. About 40 percent of respondents said they had tightened lending standards on prime mortgages during October, up from just 15 percent in July.
“We’re at the point now where more and more evidence is starting to emerge that the next 12 months are going to be more difficult,” said Joe Battipaglia, market strategist with Stifel Nicolaus & Co.’s private client group. “Problems in the housing market are getting deeper and more treacherous,” as home inventories rise and sale prices fall.
The Dow Jones industrial average fell 51.70, or 0.38 percent, to 13,543.40. The Dow was down nearly 150 points early in the session and briefly popped into the plus side in the late afternoon.
The late-session buying was likely the result of short covering, when traders buy stock to cover bets they made earlier that the market would decline. In short covering, traders are not looking to economics or other market fundamentals when they decide to buy.
Broader stock indicators also fell. The Standard & Poor’s 500 index fell 7.48, or 0.50 percent, to 1,502.17, and the Nasdaq composite index fell 15.20, or 0.54 percent, to 2,795.18.
Bonds prices fell, with the yield on the benchmark 10-year Treasury note rising to 4.34 percent from 4.32 percent late Friday.
Light, sweet crude lost $1.95 to settle at $93.98 per barrel on the New York Mercantile Exchange.
The concerns about credit weighed on stock markets overseas. In Europe, Britain’s FTSE 100 fell 1.06 percent, Germany’s DAX index shed 0.53, and France’s CAC-40 declined 0.63 percent. In Asia, Japan’s Nikkei stock average fell 1.50 percent, while Hong Kong’s Hang Seng index fell 5.01 percent. The decline in Hong Kong also reflects concern over a possible delay of a government plan to list shares of mainland Chinese companies there.