Dow industrials fall below 12,000 as oil rises

Traders work on the floor of the New York Stock Exchange 23 January 2008.

18 June 2008

By TIM PARADIS

Stocks tumbled Wednesday amid renewed concerns about the financial sector and after FedEx Corp. warned that weakening demand and surging fuel costs would weigh on fiscal 2009 profits. The Dow Jones industrial average fell below the 12,000 mark for the first time since mid-March and, along with the other major indexes, showed a decline of more than 1 percent.

Bond prices jumped as stocks retreated.

Unease about financials arose after several worrisome developments. Fifth Third Bancorp said it plans to cut its dividend by nearly two-thirds, raise $1 billion through an offering of preferred stock and generate another $1 billion through the sale of businesses.

MF Global Ltd. predicted that tight credit spreads will weigh on its fiscal first-quarter earnings. The futures and options broker said it plans to sell $300 million in convertible securities to help pay down a loan due this year.

And Morgan Stanley reported stronger-than-expected fiscal second-quarter earnings because of increased trading and asset sales. But earnings at the nation's second-largest investment bank fell 61 percent from a year earlier as revenue declined sharply.

Investors' jitters about the financial sector followed a forecast from FedEx that predicted earnings for the fiscal year that began this month will fall well short of what Wall Street had been expecting. The shipping concern's predictions serve as the latest sign that the spike in oil prices, which have nearly doubled in the past year, is exacting a burdensome tax on businesses and consumers alike.

"I think the news out of FedEx today really is starting to make people second guess some of the optimism that had been brewing over the last few weeks," said Craig Peckham, market strategist at Jefferies & Co. in New York. He said some investors had until recently been hopeful that the market's worries were overblown and that the economy was on the mend.

But sellers dominated in late afternoon trading. The Dow fell 128.31, or 1.06 percent, to 12,031.99. The decline follows a loss of more than 100 points for the blue chips on Tuesday.

It briefly fellow below 12,000 before recovering. The index hadn't traded below the 12,000 level since March 18 and last closed below it on March 17.

"I think the 12,000 level is probably more psychological than anything else, but in reality for the general investing public, crossing below that threshold is going to be a big headline grabber and runs the risk of pulling down sentiment," Peckham said.

Broader stock indicators also pulled back. The Standard & Poor's 500 index fell 13.64, or 1.01 percent, to 1,337.29, and the Nasdaq composite index fell 28.25, or 1.15 percent, to 2,429.48.

Light, sweet crude rose $2.30 to $136.31 on the New York Mercantile Exchange after the Energy Department said the nation's crude oil stockpiles fell less than expected last week but that gasoline supplies declined. Though often volatile, the weekly numbers have drawn increased attention in recent months as investors look for any clues about where energy prices are headed.

The run-up in oil has unnerved some on Wall Street and raised the prospect that strapped consumers are going to pare spending on discretionary items because they are forced to reach deeper into their wallets at the gas pump.

Bond prices jumped as stocks declined. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 4.14 percent from 4.20 percent late Tuesday. The dollar was mixed against other major currencies, while gold prices rose.

Among financials — one of the weakest performing sectors of the session — Morgan Stanley fell 18 cents to $40.41. Fifth Third, a regional bank, declined $2.37, or 19 percent, to $10.37, while MF Global fell $5.24, or 40 percent, to $8.02.

"The financials are getting hit. There just isn't anything to spark interest in buying," said Ron Kiddoo, chief investment officer for Cozad Asset Management Inc. in Champaign, Ill. He said that investors are finding it difficult to set aside worries about when the economy might show signs of strengthening.

FedEx predicted it will earn $4.75 to $5.25 per share for its fiscal year, below the $5.92 per share analysts had expected, according to Thomson Financial. The stock fell $2.33, or 2.8 percent, to $82.

Declining issues outnumbered advancers by nearly 4 to 1 on the New York Stock Exchange, where volume came to 851.1 million shares.

The Russell 2000 index of smaller companies fell 8.05, or 1.09 percent, to 728.52.

Overseas, Japan's Nikkei stock average rose 0.73 percent. Britain's FTSE 100 fell 1.79 percent, Germany's DAX index declined 0.99 percent, and France's CAC-40 fell 1.44 percent.
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