Stocks fall sharply on bleak reports
NEW YORK -- Stocks fell sharply Friday after a series of depressing economic and corporate reports and high oil prices stoked concerns about the health of the economy.
The major stock indexes fell more than 2.5 percent and the Dow Jones industrials lost 315 points.
A crush of cash from investors seeking a hedge against inflation lifted several commodities to new highs this week. For the third day in a row, U.S. crude oil futures set a record, hitting $103.05 before retreating to settle down 75 cents at $101.84.
Investors were unnerved by disappointing quarterly results from American International Group Inc., the world's largest insurer, and Dell Inc.
Bill Shultz, chief investment officer at McQueen, Ball & Associates, said AIG's report left investors uneasy about the prospect of further sizable write-downs of bad debt.
"Every time we get to a point where we think we've finished, another report comes out and says we're not done yet," he said.
AIG, on the heels of reporting its largest-ever loss, said on Friday the subprime crisis had thrown it into "uncharted waters" that were likely to remain choppy through 2008.
The insurer recorded a loss of $5.3 billion Thursday, stemming from a $11.12 billion write-down of a super senior, or highly rated, credit swap portfolio in its AIG Financial Products unit.
AIG has not ruled out further write-downs and losses in this portfolio, which is akin to an insurance policy on other companies' derivatives, but said it does not expect a decline in the value of its credit swaps to be material to the company in the long run.
"We are in uncharted waters," Chief Executive Martin Sullivan said on a conference call Friday, a day after reporting AIG's largest quarterly loss since it was founded in 1919.
The deterioration in AIG's derivatives portfolio is another example of how the global credit crisis is expanding throughout the financial services sector.
While stocks made sharp gains in the first three days this week even amid somewhat lackluster economic readings, the litany of concerns investors succumbed to Friday reflected the undercurrent of uncertainty that has kept Wall Street on edge for months.
"We really had to face a plethora of negative news," said Art Hogan, chief market strategist at Jefferies & Co. in Boston. "We just ran out of gas this week."
Hogan said while stocks held up admirably early in the week amid an uneven flow of economic news, they couldn't hold their gains after the latest round of weak economic signals.
The Dow fell 315.79, or 2.51 percent, to 12,266.39. The decline more than erased the week's 200-point gain and sent stocks lower for February, the fourth straight month of declines.
Broader stock indicators also tumbled. The Standard & Poor's 500 index lost 37.05, or 2.71 percent, to 1,330.63, and the Nasdaq composite index declined 60.09, or 2.58 percent, to 2,271.48.
Computer maker Dell posted a 6 percent decline in its quarterly profit, falling below analysts' expectations, and warned that its business could suffer from reduced customer spending. Dell slid 97 cents, or 4.7 percent, to $19.90.
For the week, the Dow lost 0.93 percent, while the S&P 500 gave up 1.66 percent and the Nasdaq fell 2.58 percent.
The week's losses would have been steeper had stocks not risen early in the week on hopes many of Wall Street's credit troubles were easing and after IBM Corp. announced a sizable stock repurchase plan.
In other economic news, the Chicago Board Options Exchange's volatility index, known as the VIX, and often referred to as the "fear index," jumped 12.5 percent.