Forget houses. Now Americans are cutting purchases of everything from burgers to diamond rings.Investors unloaded shares feverishly as their focus shifted from the mortgage debacle's effect on financial firms to the harm the crisis is exacting on the economy's other cogs, especially consumer spending.
The Dow Jones Industrial Average ended down 246.79 points Friday, down 1.9%, at 12606.30, off 5% so far in 2008. American Express, a component of the average, tumbled by 10% after warning it will have to take a charge of $440 million before taxes in the fourth quarter to cover higher delinquencies and loan write-offs.
Other credit-card issuers watched their shares tumble in the wake of American Express's announcement, which raised anxiety that stretched consumers at all income levels may be having trouble paying their bills. Capital One Financial, which had warned earlier this week about a darkening outlook, declined 0.8%. Discover Financial shares dropped 3.7% and MasterCard fell 8.6%.In another worrisome signal about affluent consumers, Tiffany & Co. slid 11.2% after trimming its fiscal-year profit outlook. Chief Executive Michael J. Kowalski said while sales growth was strong in key overseas markets, the jewelry retailer's U.S. sales softened during the recent holiday season.
Spending worries also ate into McDonald's shares, which fell 6.6% after an independent analyst's survey showed tepid growth in the chain's same-store sales in December. Analysts at Friedman Billings Ramsey issued the equivalent of a "hold" rating on McDonald's, citing "reservations" about its future results.
The Standard & Poor's 500 was down 1.4%, or 19.31 points, at 1401.02, led lower by consumer stocks. The broad measure's financial components gained nearly 1% as a group, although there were still a few big losers offering stark reminders of the lingering risks from bad mortgage bets on Wall Street. For the year, the S&P is down 4.6%.
The tech-focused Nasdaq Composite Index fell 2%, or 48.58 points, to 2439.94, down 8% on the year.
Bank of America meanwhile confirmed that it had reached a $4 billion all-stock deal to acquire Countrywide Financial. When news that such a deal was in the works broke yesterday, it caused a big stock-market jump on renewed optimism that other troubled lenders might garner new investments to buoy their financial outlook. But that hope quickly dissipated Friday morning. Countrywide's shares plunged 18.3% and Bank of America ended down 2%.
Not all financials skidded, however. Investment banks, including Merrill Lynch and Bear Stearns, made solid gains. Fannie Mae and Freddie Mac were higher by over 5% each. Bond insurer MBIA jumped 17.6%, and rival Ambac Financial Group was stronger by 12%.
With a flurry of financial firms expected to report earnings next week, analysts are bracing for more bad news. According to Reuters Estimates, a New York firm that tracks Wall Street's earnings forecasts, the consensus expectation is that aggregate fourth-quarter earnings at S&P 500 companies will show a 9% decline over the year-ago period once all the latest reports are in hand, led by a 68% plunge in the financial sector's earnings.
