Russell 2000 leads sell-off
The Russell 2000 (NYSE: IWM) has lost three times as much as the Dow Jones Industrial Average (INDU) as stocks drop on news of disappointing earnings and mortgage market concerns.
At 10:50 a.m. ET the Russell 2000 was down 13.19 points, or 1.58%, to 822.43. The Dow had lost 62.02 points, or 0.44%, to 13,881.40.
Calabasas, Calif.-based Countrywide Financial Corp. (NYSE: CFC), which is the largest U.S. mortgage lender and serves as a barometer of the state of the housing sector, reported this morning that its second-quarter net income fell to $485.1 million, or $0.81 per share, compared with $722.2 million, or $1.15 per share, a year earlier.
That’s below the consensus estimate of 14 analysts polled by Thomson Financial, who were looking for earnings of $0.95 per share.
CEO Angelo Mozilo left no doubt as to where the blame lies.
“During the quarter, softening home prices continued to affect many areas of the country and delinquencies and defaults continued to rise across all mortgage product categories as a result,” he said.
That’s a strong sign that the slump in the U.S. housing sector, which started in the second half of 2006 and has lasted longer than most expected, is continuing to ripple through the economy and is now hurting companies outside the subprime mortgage sector, the first and hardest hit.
Subprime lending serves borrowers with poor or non-existing credit histories.
Falling housing prices have hurt many consumers that took out home-equity loans during the housing boom and are now struggling to refinance or sell.
It looks as if the pain is going to continue.
Countrywide said that it projects a difficult second half of 2007 for the mortgage industry and lowered its fiscal year forecast to between $2.70 per share and $3.30 per share, below its April guidance of between $3.50 per share and $4.30 per share. Wall Street was looking for earnings of $3.65 per share.
Also affected was chemicals company E. I. du Pont de Nemours and Comp. (NYSE: DD), better known as DuPont. The Wilmington, Del.-based firm reported flat second quarter earnings compared with a year earlier due to lower demand for paint and kitchen countertops.
Separately, chip technologies maker Texas Instruments Inc. (NYSE: TXN) announced this morning that its second-quarter profit sunk 75% compared with a year earlier.
