Banks and brokerages have been hurt during the third quarter in the fallout from the subprime mortgage crisis.Tentative Buying Helps Wall Street Pare Losses Triggered by BofA Results, Economic Worries.
Wall Street pared most of its losses Thursday as investors absorbed disappointing results from Bank of America Corp. that provided further evidence of how the credit crisis has hurt the economy.
The Dow Jones industrial average, down as much as 60 points earlier in the session, rebounded sharply in midafternoon trading to pop into positive territory. Analysts believe the market’s return is typical market behavior as investors rush back into the market during the afternoon to pick up beaten-down stocks.
On Thursday, investors were spooked after BofA — considered a bellwether for the banking industry because it has branches across the country — said “significant dislocations” in the capital markets sent third-quarter profits down 32 percent. Citigroup Inc. and Washington Mutual Inc. reported similar results in recent days.
Banks and brokerages have been hurt during the third quarter in the fallout from the subprime mortgage crisis. As people with weak credit defaulted on loans at an alarming rate, it triggered a global aversion for risk that led the credit markets to freeze up.
Treasurys rallied and the dollar fell to a new low against the euro after the Labor Department said the number of newly laid off workers filing claims for unemployment benefits shot up last week by the largest amount since February. The report was far worse than economists expected, and signaled that the labor market could be starting to weaken from a downturn in housing and the global credit turmoil.
“There are so many factors going on right now between the dollar getting crushed, oil moving higher, and news out of the banking sector,” said Greg Church, chief investment officer of Church Capital Management. “Yet, it is amazing to me that this market continues to lift its head. The market came back somewhat because there’s that whole camp that thinks any bad news is good news that the Fed will lower rates.”
In midafternoon trading, the Dow rose 11.78, or 0.08 percent, to 13,904.32. If the blue chip index stays on course it will be the first positive session in four sessions.
Broader indexes were also higher. The Standard & Poor’s index rose 1.31, or 0.08 percent, to 1,542.55, while the Nasdaq composite index added 10.59, or 0.38 percent, at 2,803.26.
The yield on the benchmark 10-year Treasury note, which moves inversely to prices, fell to 4.52 percent from 4.55 percent late Wednesday. Treasury prices rose again after rallying sharply Wednesday amid growing signs of trouble in the housing sector.
Also, the Philadelphia Federal Reserve reported that its October manufacturing index came in weaker than expected. The report showed a slowdown in growth for the regional economy, and some inflationary pressures.
Sluggish economic data could help motivate the U.S. Federal Reserve to cut interest rates at its Oct. 30-31 meeting. Central bankers cut rates by a half point at their September meeting.
Oil prices continued their advance due to further tensions between Turkey and Kurdish rebels in Northern Iraq. A barrel of light, sweet crude for November delivery rose 18 cents to $88.58 a barrel on the New York Mercantile Exchange.
Disappointing results from BofA made the market wary about other upcoming earnings reports, including Google Inc. and Advanced Micro Devices Corp. after the closing bell.
About 60 members of the Standard & Poor’s 500 index have reported quarterly results so far this week. Most of the attention has been on the nation’s biggest banks, which reported mostly disappointing results on write-downs from leveraged loans, mortgages, and consumer credit.
Bank of America said capital markets losses offset growth in other businesses, and the company doubled its loan-loss provisions. This caused net income to decline to 82 cents per share from $1.18 a year earlier — a big miss considering analysts polled by Thomson Financial projected a profit of $1.06 per share.
Shares of the Charlotte, N.C.-based bank fell $1.78, or 3.5 percent, to $48.25.
Washington Mutual tumbled $2.45, or 7.4 percent, to $30.62 after it reported quarterly profit plunged 72 percent. The nation’s largest thrift blamed the drop on sagging home prices, which made it harder for borrowers to pay their bills and hurt the value of their mortgage loan portfolio.
E-Trade Financial Corp. late Wednesday reported an unexpected loss because of its exposure to credit markets. The discount brokerage took a $200 million write-down linked to mortgage-related investments, and its shares tumbled $1, or 8 percent, to $11.47.
Pharmaceutical stocks were weaker after Pfizer Inc. said third-quarter profit plunged due to a $2.8 billion pretax charge to end investment in the inhaled insulin drug Exubera. The world’s largest drug company also had lower sales of blockbuster cholesterol drug Lipitor. The stock rose 21 cents to $24.76.
The Hershey Co., the nation’s largest candy maker, said profit tumbled 66 percent because of lower sales and higher promotional costs. The maker of Hershey’s Kisses and Reese’s candy missed Wall Street projections, and shares fell $1.51, or 3.4 percent, to $42.78.
The Russell 2000 index of smaller companies rose 0.08, or 0.01 percent, to 824.97.
Declining issues led advancers by a thing margin on the New York Stock Exchange, where volume came to 708.9 million shares.
Overseas, Japan’s Nikkei stock average closed up 0.89 percent. Britain’s FTSE 100 fell 1.10 percent, Germany’s DAX index fell 0.76 percent, and France’s CAC-40 fell 0.98 percent.