Stocks Crumple on Weak Data; Credit Anxiety Remains in Focus

February 15, 2008 10:41 a.m.

Stocks fell as investors fretted both about industry's ability to profit by making goods and about Wall Street firms' ability to remain solvent after making risky credit investments.

The Dow Jones Industrial Average recently traded down 44.38 points, or 0.4%, at 12332.60. The Standard & Poor's 500 was off 0.4%, or 4.93 points, at 1343.93, led by industrial components, off nearly 1%. The tech-focused Nasdaq Composite Index was off 0.6%, or 12.99 points, at 2319.55.

The selloff is being fueled by a continued trickle of unpleasant corporate news from big financial firms and several pieces of new data about the so-called real economy. Those data have again undermined investors' already scant hopes that the ill effects of Wall Street's soured credit bets might not spill into other parts of the economy.

Major stock indexes are still clinging to modest weekly gains, with the Dow up about 1%. But the buoyant mood from just a few days ago has quickly evaporated, with many investing pros saying the market is still in an overall slump despite brief bursts of buying.

"We still think that this is a bear market," said Barry James, president of James Investment Research in Alpha, Ohio.

In recent weeks, Mr. James has encouraged clients to increase their proportion of stocks in their portfolios by a few percentage points, mostly because major yardsticks like the Dow have posted such poor year-to-date performance that they now look a little cheap. But Mr. James has been careful to warn that he sees only a short-term buying opportunity.

"It's certainly not a time to go hog-wild," he said. "It's just that we've had some areas of the market that have been absolutely crushed, so that always warrants a good, hard look. But eventually we'll have to go back to a more cautious approach."

In economic news, the New York Federal Reserve reported early Friday that its general business conditions index tumbled to -11.72, falling below zero for the first time since May 2005, from a reading of 9.03 in January. The index was well below the median forecast of 6.5 in a Dow Jones Newswires survey.

Import prices jumped 1.7% last month as higher energy, food and commodity prices pushed the annual increase to a record high. Economists had been expecting only a 0.5% rise. Compared to a year ago, prices soared 13.7%, the highest reading since the government began gathering the data in 1982. Export prices also surged last month, by 1.2%.

Investors also digested several unwelcome bits of news about Wall Street firms. People familiar with the situation told The Wall Street Journal that troubled Financial Guaranty Insurance Co., has notified the New York State Insurance Department that it will request to be split into two companies. The news comes a day after New York Gov. Eliot Spitzer and the state's insurance commissioner Eric Dinallo testified to Congress about the problems facing the bond insurers.

UBS dropped almost 3% in early trading after Citigroup analysts speculated the bank might need to write off another 12 billion Swiss francs ($10.9 billion) to 20 billion Swiss francs in 2008. Also, The Wall Street Journal's report that Citigroup has barred investors in one of its hedge funds from withdrawing their money could spook already wary investors.

Warren Buffett's Berkshire Hathaway disclosed Thursday that it amassed an 8.6% stake in Kraft Foods in 2007. Berkshire also revealed that it increased holdings in Wells Fargo, bought a new stake in GlaxoSmithKline and trimmed stakes in Ameriprise Financial and Iron Mountain. Kraft climbed nearly 6% Friday.

Shares of Best Buy slipped 4.3% after the consumer-electronics retailer cut its fiscal 2008 earnings forecast, citing soft domestic customer traffic in January.

Crude oil futures gained 72 cents to $96.18 a barrel.

In major market action:

Stocks were down. On Friday, 825 stocks were up and 2,044 were down at the New York Stock Exchange.

Bonds rose. The two-year note was up 2/32, yielding 1.862%. The 10-year note gained 11/32 to yield 3.780%. The 30-year bond rose 24/32 to yield 4.606%. Yields move inversely to prices.

The dollar weakened. The euro traded at $1.4690, compared with $1.4637 late Thursday in New York, while the dollar traded at 107.62 yen, versus 107.98 yen late Thursday.

Write to the Peter A. McKay at peter.mckay@wsj.com