NEW YORK (Reuters) - Stocks fell to six-week lows on Wednesday on worries about steeper losses at banks worldwide and as U.S. retail sales data pointed to a deepening recession.
The bleeding could continue Thursday after technology bellwether Apple Inc said that its chief executive, Steve Jobs, will take a medical leave of absence until June, a surprise development that sent equity index futures lower.
On Wednesday, the S&P 500 and Nasdaq tumbled more than 3 percent, and all 30 Dow stocks were in the red, including Citigroup. The bank shed more than 23 percent as investors and analysts worried whether the bank can be profitable as it unravels its business model. It is expected to post a multibillion-dollar loss this week.
Highlighting the strain banks are under, The Wall Street Journal reported that the U.S. government is close to extending billions more aid to Bank of America Corp, sending the bank’s stock lower after the bell.
Fears about the banking sector were exacerbated after Morgan Stanley analysts forecast HSBC, Europe’s biggest bank, is likely to halve its dividend and may need to raise up to $30 billion of capital, while Germany’s Deutsche Bank said it lost more than $6 billion last quarter.
“There is an awful lot of uncertainty out there about how severe the economic downturn will be and whether there will be a second round of asset write-downs,” said Lincoln Anderson, managing director and chief investment officer at LPL Financial in Boston.
The Dow Jones industrial average fell 248.42 points, or 2.94 percent, to 8,200.14. The Standard & Poor’s 500 Index gave up 29.17 points, or 3.35 percent, at 842.62. The Nasdaq Composite Index lost 56.82 points, or 3.67 percent, to 1,489.64.
Sales at U.S. retailers fell 2.7 percent in December as the economic slowdown made consumers cut back on spending during retailers’ crucial holiday selling period.
Consumer spending accounts for about two-thirds of U.S. economic activity, making it a key pillar of corporate profits.
The day’s declines put another wrench in the market’s attempt to recover from the November bear market low. The broad S&P 500 had gained more than 20 percent from that level, but is now up only close to 14 percent. It was the sixth straight day of declines for the Dow, racking up losses of 815 points, or 9 percent.
The S&P financial index was down 5.7 percent. Since the start of the year, the index has managed only two up days. Citigroup was down 23.2 percent at $4.53 after a deal by the embattled bank to sell a controlling stake in its crown jewel, the Smith Barney retail brokerage unit, to Morgan Stanley for $2.7 billion.
Analysts speculate the Smith Barney sale is a precursor to a break-up of Citigroup and that the bank must be urgently seeking to replenish capital due to mounting losses.
Citigroup is due to report its results on Friday, after moving up the reporting date, while JPMorgan Chase & Co is due to post its results on Thursday, after also moving up its date. JPMorgan fell 1.7 percent to $25.91.
Bank of America fell nearly 6 percent to $9.61 in extended trade following the Wall Street Journal report.
Apple shares fell nearly 10 percent after the bell after Jobs announced his decision to take a medical leave, saying his health problems are “more complex” than he had thought. The statement came just over a week after Jobs sought to alleviate nagging worries about his health.
The S&P retail index fell 3.6 percent on worries cash-strapped consumers spooked by the recession will remain unwilling to buy.
Energy shares also tumbled, taking oil’s lead as U.S. crude fell 50 cents to $37.28 a barrel on rising inventories and weakening demand from the United States, the world’s biggest energy consumer. Exxon Mobil and Chevron were among the Dow’s biggest drags, falling 3.6 percent to $75.10 and 3 percent to $69.69, respectively.
The Federal Reserve’s anecdotal Beige Book report on the economy added to the sour picture, showing the economy weakened further into the opening days of the new year.
Tax and domestic help troubles surrounding Treasury secretary-nominee Timothy Geithner further dampened investor sentiment, but President-elect Barack Obama said he expects Geithner to be confirmed. Geithner would be Obama’s point man on efforts to combat the financial crisis.
Trading was moderate on the New York Stock Exchange, with about 1.42 billion shares changing hands, below last year’s estimated daily average of roughly 1.9 billion, while on Nasdaq about 1.94 billion shares traded, below last year’s daily average of 2.17 billion.
Declining stocks outnumbered advancing ones on the NYSE by 2,793 to 318 while decliners beat advancers on the Nasdaq by about 2,263 to 477.
Additional reporting by Rodrigo Campos; Editing by Leslie Adler