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Worst June since Depression

Slowing economy, oil prices help send Dow into 358-point tailspin

Rocky Wire Reports

Published June 26, 2008 at 4:58 p.m.

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Oil

Photo by Associated Press

Oil

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U.S. stocks tumbled, sending the Dow Jones industrial average to its worst June since the Great Depression, as record oil prices, credit-market write-downs and a slowing economy threatened to extend a yearlong profit slump.

The Dow dropped 358.41 points, more than 3 percent, to close at 11,453.42 - its lowest finish since Sept. 11, 2006.

Investors contended with the barrage of bad news that also included warnings of trouble in the key financial, automotive and high-tech industries:

* General Motors Corp., the largest U.S. automaker, plunged the most in three years as Goldman Sachs Group Inc. advised selling the stock, and crude rose by $5 a barrel.

* Citigroup Inc. led the KBW Bank Index to an almost 10-year low as Goldman said the lender may report an $8.9 billion second-quarter charge and cut its dividend.

* Research In Motion Ltd., maker of the BlackBerry, posted its biggest drop since 2001 on concern competition with Apple Inc.'s iPhone is reducing earnings.

* Oil futures shot past $140 for the first time after the head of OPEC predicted the price of a barrel of crude could rise well over $150 this year, and Libya said it may cut oil production.

That increases the odds that gasoline prices, which crossed a nationwide average of $4 a gallon weeks ago, will extend their advance and that goods and services across the economy will get ever more expensive.

"Most investors are going to sit on the sidelines until they're more certain the sharks have left the waters and it's safe to go back in," said Bruce McCain, the Cleveland-based head of investment strategy at Key Private Bank, which oversees about $30 billion.

All the bad news overshadowed a report by the National Association of Realtors that sales of existing homes edged up in May for only the second time in the past 10 months.

It also wiped out any positive impact from the Federal Reserve's widely expected decision Wednesday to leave interest rates unchanged.

And it drove home anew how much U.S. companies stand to be hurt by the prolonged housing slump, the credit crisis and the soaring price of oil.

The great fear on Wall Street has been that rising prices and worries about their finances will force Americans to curb spending and reinforce the economic decline.

That fear was backed up by the latest reading on the gross domestic product. The Commerce Department said the economy grew at a 1 percent annual rate in the first quarter - a slight improvement from earlier estimates but still anemic.

The tale of the tape:

* The Nasdaq composite index sank 79.89, or 3.3 percent, to 2,321.37, its worst loss since January.

* The Standard & Poor's 500 index plunged 38.82, or 2.9 percent, to 1,283.15, its biggest drop in three weeks.

* All 10 industry groups in the S&P 500 retreated at least 1 percent as Nike Inc. said U.S. earnings dropped and Oracle Corp. predicted the slowest sales growth since 2006, adding to concern that consumers and businesses are cutting back as the economy expands at the weakest pace in five years.

* The Dow has slumped 9.4 percent this month, its worst June since an 18 percent tumble in 1930 during the Great Depression.

* All 30 companies have posted losses in the month as oil surged, the unemployment rate jumped to the highest since 2004, and concern grew that global financial firms will add to $400 billion of subprime-related write-downs.

OPEC President Chakib Khelil was quoted as telling a French television station that oil could rise to between $150 and $170 per barrel this summer before pulling back later in the year.

That and a falling dollar helped send light, sweet crude as high as $140.39 and to a record settlement of $139.64 on the New York Mercantile Exchange.

Staff writer James Paton contributed to this report.

Four factors that drove the market

Oil

Oil futures shot above $140 Thursday before settling to a record $139.64 close after OPEC's president said crude prices could rise well above $150 a barrel this year and Libya said it may cut oil production.

Automotive

General Motors Corp., one of the 30 stocks that compose the Dow industrials, sank to its lowest level in more than 30 years, after a Goldman Sachs analyst cut his rating on the stock to "sell."

Financial

Citigroup Inc. fell sharply after an analyst placed a "sell" rating on the stock and warned investors to expect less from the brokerage sector in an uneasy economic climate.

Technology

Technology bellwethers Oracle Corp. and BlackBerry maker Research In Motion Ltd. made the tech sector one of the steepest decliners after issuing disappointing forecasts.

What they're saying

"Investing is a marathon. You should not approach it with a sprinter's mentality. This is how opportunities are created. A consumer-driven recession is something we haven't had in a long time. You want to make sure you own companies that will come out of this recession stronger.

Vitaliy Katsenelson director of research Investment Management Associates

"The CBOE volatility index was up 13 percent today, which shows there was some serious fear on Wall Street, but at 23 it is still a long way from the 30s it traded at in January and again in March, which may mean the markets have further to fall in the short term."

Fred Taylor principal at Northstar Investment Advisors

"Oil may be the single factor that ends up tipping the U.S. into recession. More pressure on the consumer is the last thing the banks need right now. The good news is that all these events have been known for a while, so the market may be close to discounting them."

Greg Denewiler Denewiler Capital Management

"Most investors are going to sit on the sidelines until they're more certain the sharks have left the waters."

Bruce McCain head of investment strategy at Key Private Bank

"We've been saying for over a year that the emperor has no clothes, and today the market woke up to that. The weak dollar, skyrocketing oil and food costs, combined with the collapsing credit markets, will crush corporate earnings far worse and far longer than many predicted. Solid companies will be unfairly beaten down. This may present the buying opportunity of a lifetime for savvy investors."

Jeff Wilson Wilson Advisory Group president

"The greater question for investors is what is the health of the economy? It's clear it is not good, and the chances the economy simply has a bad cold is losing credibility. Goldman Sachs downgraded General Motors and Citigroup today and did so for good reasons."

Todd Gervasini Wakefield Asset Management

"It's another ugly day. Until we get through another round of disclosures and through earnings season, the safest place is on the sidelines."

James Dunigan PNC Advisors chief investment officer

"It's the end of the quarter, oil is up and you've got a continued bashing of financials. Plenty of fuel for the fire."

David Heupel portfolio manager at Thrivent Financial

Comments

  • June 26, 2008

    7:43 p.m.

    Suggest removal

    seeingeyeseesall writes:

    Republican "Billionaire Frat Boys Club" Economic Policy Total Failure, Charlatan Behind Curtain Shows Self Again ... Film at 11.

  • June 27, 2008

    7:56 a.m.

    Suggest removal

    Cliffjumper writes:

    Good time to chase away Jobs, investment, and Industry. No wonder the liberal sciences and also called the soft sciences. At least Republicans want us to prosper, Democrats only relish limiting our freedoms and jobs. Remember for every dollar a liberal promises you for free, they are taking two out of your pocket.

  • June 27, 2008

    8:03 a.m.

    Suggest removal

    LingLingfor_prez writes:

    I thought the Dow Jones was only 30 stocks. Not really a big indicator compared to the big picture.

  • June 27, 2008

    8:03 a.m.

    Suggest removal

    cooperjtd writes:

    republicans blame democrats, democrats blame republicans. By that reasoning maybe we should just start a new system of government that isn't as corrupt or money hungry.

  • June 27, 2008

    8:32 a.m.

    Suggest removal

    Bob299 writes:

    Welcome to the Republican Legacy.

  • June 27, 2008

    8:38 a.m.

    Suggest removal

    fishoutawater writes:

    Wild how this is all occuring during the Bush Administration. A lot has occured! This will turn around, but when? I've been a Republican for 35 years and have seen the light. No more voting against my own wishes. I've observed Democrats cleaning up Republican messes my whole life. No more promises of hope and prosper can be shoved down my throat. Republican policies benefit corps and wealthy fat cats. Wake up! I am, and Im sorry my mistakes may have led to this. Change!

  • June 27, 2008

    9:47 a.m.

    Suggest removal

    Arioch writes:

    "I thought the Dow Jones was only 30 stocks. Not really a big indicator compared to the big picture."

    You're right about the DJIA being only 30 stocks, and mathematically, you're correct. However, it is usually a strong indicator for the emotional side of the market, which is often overlooked, but almost as important in trading. It's a very small numerical sample, but because it's so widely quoted, it can show trends for stocks overall.

    I wasn't at work yesterday, so I wasn't watching the numbers. (I work for an investment company.) If either of us cared to do any checking, I'm sure that we'd find a similar drop, percentage-wise, in the NASDAQ, the S&P 500, and even some of the lesser indices.

  • June 27, 2008

    10:06 a.m.

    Suggest removal

    LingLingfor_prez writes:

    Arioch,
    Thanks for the insight, was curious about that.

  • June 27, 2008

    11:40 a.m.

    Suggest removal

    joggle writes:

    Cliffjumper: "At least Republicans want us to prosper"

    Who do you mean by 'us'? The upper 5% of the nation in terms of personal wealth or large corporations? In that case sure, I agree. However, for the rest of us I don't think they (the Republicans in power) could hardly care less.