U.S. stocks fell, pushing the Dow Jones Industrial Average to the brink of a bear market, on concern subprime-related writedowns will worsen and record oil prices will reduce profits at consumer companies.
The Dow extended its retreat from an October closing record to almost 20 percent, the threshold for a so-called bear market. American International Group Inc. slid to an 11-year low on the insurer's plans to absorb as much as $5 billion of losses from units hit by writedowns. Merrill Lynch & Co. dropped to its lowest level since March 2003 after Lehman Brothers Holdings Inc. increased its second-quarter loss estimate. Micron Technology Inc., the largest U.S. producer of memory chips, plunged the most since February as falling prices weighed on earnings.
The Dow lost 121.16, or 1.1 percent, to 11,332.26 at 1:24 p.m. in New York. The 30-stock, down 10 percent this month in its worst June since 1930. The S&P 500 slid 8.77 points, or 0.7 percent, to 1,274.38. The index dropped 2.9 percent yesterday, the steepest decline since June 6. The Nasdaq Composite Index slipped 23.97 to 2,297.4. More than two stocks declined for each that rose on the New York Stock Exchange.
``This week the news on earnings is that the second quarter is probably going to be worse than we thought,'' said Ron Sweet, vice president of equity investments at USAA Investment Management Co., which oversees $100 billion in San Antonio. ``The old news keeps sticking around: it's energy prices, it's writeoffs at banks, it's the slow economy.''
The S&P 500 has fallen 3 percent this week, while the Dow has slid 4 percent and the Nasdaq tumbled 4.2 percent. The four consecutive weeks of declines for the S&P 500 is the index's longest losing streak since January. The S&P 500's 8.7 percent decline so far in June is the worst monthly performance since the 11 percent plunge in September 2002.
Earnings Slump
Analysts forecast earnings for companies in the S&P 500 will slump 11 percent on average, according to a Bloomberg survey today, compared with a projected decline of 8.9 percent a week ago. Goldman Sachs Group Inc. strategist David Kostin said in a report today that expectations for 2008 and 2009 profits are ``too optimistic'' and are likely to be reduced.
American International Group Inc. decreased 54 cents to $27.55. The world's largest insurer plans to absorb as much as $5 billion of losses for a dozen insurance units after their securities-lending accounts suffered $13 billion of writedowns tied to the subprime-mortgage collapse during the past year.
Merrill fell 41 cents to $32.64. Lehman analysts widened their second-quarter per-share loss estimate for the third- biggest U.S. securities firm to $2.78 from 64 cents, citing bigger-than-estimated writedowns related to the credit-rating downgrades of bond insurers.
Micron Slides
Micron slid 74 cents to $6.25 after posting a wider third- quarter loss as prices plunged for semiconductors used to store pictures and music in portable devices.
U.S. stocks tumbled yesterday as oil's $5-a-barrel surge, forecasts of more credit-market writedowns and a slowing economy threatened to extend a yearlong profit slump.
``The month of June has been difficult,'' Matthieu Bordeaux- Groult, who helps oversee about $6.2 billion as fund manager at Richelieu Finance in Paris, said in a Bloomberg Television interview. ``There are a lot of negative elements in the market such as high raw materials prices, but valuations are low and offer buying opportunities.''
The S&P 500, which has fallen 13 percent this year, is valued at 21.2 times earnings, near the lowest in two months.
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