Financial sector leads decliners on Citigroup’s weak profits, debt rescue fund implications; crude hits all-time high above $86 a barrel.
By Alexandra Twin, CNNMoney.com senior writer
October 15 2007: 8:20 PM EDT
NEW YORK (CNNMoney.com) — Stocks tanked Monday, with the Dow posting its biggest one-day loss in more than a month, after Citigroup’s weak profit report and record-high oil prices sparked a big selloff.
The Dow Jones industrial average lost around 108 points, suffering its biggest one-day point loss since Sept. 7, when it slumped nearly 250 points after a disappointing August jobs report. The S&P 500 index lost 0.8 percent. Both indexes hit all-time highs late last week.
The Nasdaq composite lost 0.9 percent. The tech-heavy index hit a fresh 6-1/2 year high last week. The Russell 2000 small-cap index gave up 1.4 percent.
After falling to session lows in late afternoon, stocks managed to stabilize and shave off some losses going into the close.
Citigroup’s weak profit report set the stage for early losses, raising questions about whether the worst of the credit market fallout is really over. Also adding to those concerns: news that Citi, JP Morgan and Bank of America are setting up a debt rescue fund - at the behest of the Treasury Department.
Add to that spiking oil prices, and there were plenty of reason for a selloff, analysts said.
“Citi’s results and management comments got the ball rolling,” said Phil Orlando, chief equity market strategist at Federated Investors.
Although the poor showing was not a surprise - Citi warned two weeks ago that profit would take a hit because of subprime - it did remind Wall Street that the worst may not be over for the financial sector.
“To an extent, there has been a perception recently that the subprime and credit issues are behind us, so we can move beyond them,” said Orlando, “But today you have the biggest bank out there reminding us just how weak the quarter was for the financial sector.”
Banks try to stave off debt shock
Citigroup , JP Morgan and Bank of America announced they were working together to create a fund that will buy billions of dollars in investments that were hit by this summer’s credit crisis.
The deal was arranged by the Treasury Department to help stabilize the key short-term financing market, however, it’s unclear as to what kind of impact it will have.
Separately, Citigroup reported that third-quarter profit dropped 57 percent from a year ago due to $3 billion in writedowns related to the mortgage market fallout.
Citigroup also reported weaker earnings per share of 47 cents, that nonetheless topped analysts’ estimates. The stock lost 3.4 percent and dragged on the Dow and other bank shares.
U.S. light crude oil for November delivery rose as high as $86.20 a barrel, an intraday record, before pulling back a bit to end at $86.13, a new record close. Heating oil and natural gas prices jumped as well, raising questions about how consumer spending might be impacted.
In addition to the impact of Citigroup and the spike in oil prices, stocks were perhaps due for a pullback after the recent run that took the Dow and S&P 500 to all-time highs last week, said Michael Sheldon, chief market strategist at Spencer Clarke.
“We had a very strong advance off the lows in August and it looks like we might be due for a bit of a consolidation,” Sheldon said. “This week we have almost 20 percent of the S&P 500 due to report earnings and the start of the reporting period tends to increase market volatility.”
The quarterly reporting period began on a ho-hum note last week, when Alcoa reported earnings that rose from a year ago, but missed forecasts. But, this week brings the first big batch of reports, including Yahoo , Coca-Cola, eBay, Pfizer and a slew of banks.
After the close Monday, Genentech reported higher quarterly earnings that edged estimates on higher quarterly revenue that was shy of estimates.
Citi profits tumble
Rising oil prices lifted the stocks of oil services firms such as Exxon Mobil, but dragged on airline, railroad and trucker stocks, which are directly dependent on fuel. The Dow Jones Transportation average lost 1 percent.
General Motors fell 3.6 percent as investors backtracked after sending the stock sharply higher last week after workers ratified a new four-year contract. On Monday, GM revealed that the contract includes the transfer of $46 billion in health care liability to the union.
Among other movers, Medtronic shares slumped more than 11 percent in active New York Stock Exchange trade. The biotech said it stopped distribution of the wires that connect defibrillators to patients’ hearts on news that the wires may have caused five deaths.
Level 3 Communications, a communications network operator, slumped 11 percent in active Nasdaq trade after its chief financial officer said he was resigning.
UPS shares were little changed after the company said its CEO will retire at the end of the year.
Overall, decliners were broad-based, with 23 out of 30 Dow issues falling, led by financial stocks Citigroup, JP Morgan, American Express and AIG.
On the upside, shares of Tektronix jumped over 33 percent in unusually active trade after conglomerate Danaher said it was buying the test and measurement gear maker for about $2.8 billion.
Among other gainers, Biogen Idec climbed 19 percent after the biotech said late Friday that it may put itself up for sale.
Market breadth was negative. On the New York Stock Exchange, decliners beat advancers three to one as 1.29 billion shares changed hands. On the Nasdaq, losers topped winners 7 to 3 on volume of 2.02 billion shares.
Oil tops $86 for the first time
The NY Empire State index, a regional manufacturing report, rose to 28.8 in October from 14.7 in the previous month. Economists surveyed by Briefing.com thought it would fall to 14.
The report seemed to further bets that the economy is holding up well enough that the Federal Reserve will not need to cut interest rates at its policy-setting meeting later this month
Treasury prices inched higher, lowering the yield on the benchmark 10-year note to 4.67 percent from 4.68 percent late Friday. Bond prices and yields move in opposite directions.
In currency trading, the dollar fell versus the euro and gained versus the yen.
COMEX gold for December delivery rose $8.40 to settle at $762.20 an ounce.
