Wall Street sinks on credit worries
The Russell 2000 (NYSE: IWM) went into freefall and the Dow Jones Industrial Average (INDU) tumbled on fears of problems in the U.S. credit market. The small-cap index fell 23.76 points, or 2.84%, to 811.86, its biggest point drop since Feb. 27, to the lowest closing level since April 11, when it ended at 808.24. The Dow lost 226.47 points, or 1.62%, to 13,716.95.
Investors opted for the exits after poor quarterly earnings from key industry players sparked fears that the fallout from the sagging U.S. housing sector has spread beyond the subprime lending market.
Calabasas, Calif.-based Countrywide Financial Corp. (NYSE: CFC), which is the largest U.S. mortgage lender and a barometer of the state of the housing sector, started the day’s bearish mood when it reported that its second-quarter net income fell about 33%.
CEO Angelo Mozilo blamed softening home prices, rising delinquencies and defaults as borrowers struggled to repay loans taken out before the housing boom came to a halt in the second half of 2006.
Until now, mainstream credit markets were largely unaffected and the financial damage of the housing slump was felt primarily by the subprime mortgage sector, which serves borrowers with poor or non-existing credit histories.
To make matters worse, relief might be a long way off.
Countrywide said that it projects a difficult second half of 2007 for the mortgage industry and lowered its fiscal year forecast below its previous guidance and short of Wall Street’s expectations. Its shares fell 10%, or $3.56, to finish at $30.50.
Adding oil to the fire was Wilmington, Del.-based chemicals company E. I. du Pont de Nemours and Comp. (NYSE: DD), better known as DuPont, which reported flat second quarter earnings compared with a year earlier due to slack demand for paint and kitchen countertops.
Elsewhere, shares of Apple Inc. (Nasdaq: AAPL) also stumbled, following concerns that demand for the newly released iPhone may be slowing.
One bright spot amidst the day’s heavy losses was Seattle-based online retailer Amazon.com, Inc. (Nasdaq: AMZN), which saw its second-quarter profit more than triple due to higher electronics sales.
In economic news, the U.S. dollar reached new lows against a basket of major currencies.
