Market Dispatches1/11/2008 6:55 PM ET

Dow falls 246; worst yearly start since 1991

Bank of America's rescue of Countrywide offers no relief to a slumping market. Gold briefly touches $900 an ounce. Citigroup will get $10 billion in new capital. American Express is the second credit card company in two days to warn on profits. Tiffany gives a dull outlook.

Investors dumped stocks Friday amid worries about the health of the economy, sending the major averages to their third down week in a row.

At the close, the Dow Jones industrials were down nearly 247 points, 1.9%, to 12,606. The Nasdaq Composite Index was off 49 points, or 2%, to 2,440, and the Standard & Poor's 500 Index lost 19 points, 1.4%, to 1,401.

The selling was quite broad, hitting energy, consumer, retail, technology and airline stocks the hardest.

And the drubbing that investors absorbed sets up a volatile week ahead with fourth-quarter earnings due from:

Citigroup may give the market a lift. Late Friday, The Wall Street Journal reported that investors may be readying up to $10 billion in new capital to invest in the banking giant.

The Dow has started the year off nearly 4.96% -- its worst opening eight days since 1991, when the blue-chip index started with a 5.02% slide. The S&P is down 4.6%, its worst eight-day opening performance since 1978 and its fourth-worst ever.

The Nasdaq is down 8% so far this year, one of its worst opening performances ever.

While the selloff so far this month is significant, it doesn't necessarily mean that the year will be rotten for stocks. The Dow ended 1991 with a 20% gain. The Nasdaq's 1991 gain: 56%.

Friday's selling came because of a warning about the health of consumers from American Express (AXP, news, msgs), a warning about affluent spending from Tiffany (TIF, news, msgs) and dropping oil prices.

There were continued concerns about financial stocks because of the subprime-mortgage mess.

Technology shares swooned because of the economic worries, with high-profile stocks getting battered. Research In Motion (RIMM, news, msgs) is down 17% this month alone after rising 166% in 2007. Apple (AAPL, news, msgs) has fallen 13% after soaring 133% last year. Amazon.com (AMZN, news, msgs) is off 12.5% after a 135% gain in 2007.

The selling overwhelmed any good news, including Bank of America's (BAC, news, msgs) proposed $4 billion rescue of Countrywide Financial (CFC, news, msgs).

Twenty-four of the 30 Dow stocks were lower on the day, along with 386 S&P 500 stocks and 78 Nasdaq-100 ($NDX.X) stocks.

American Express was the worst Dow stock on the day, falling 10% to $44 after warning late Thursday that it was seeing more delinquencies and less activity from consumers and was reserving $400 million to cover potential losses.

Countrywide was actually the biggest S&P 500 loser, down 18% to $6.33 after Bank of America said it would acquire the nation's largest mortgage lender for $4 billion in an all-stock deal. Countrywide's sell-off was understandable; the shares had shot up 51% on Thursday when reports of the possible deal first surfaced. Bank of America was down 2% to $38.50.

Gold continued its spectacular run, hitting $900.10 an ounce briefly, its first time above $900. But profit-taking set in, and the metal closed at $897.70, up $4.10 on the day. Gold is up 3.7% this week and 7.1% this month.

The markets for the week
Close for weekWk. ago close% chg.YTD. chg.
Dow Jones industrials12,606.3012,800.18-1.51%-4.96%
S&P 500 1,401.021,411.63-0.75%-4.59%
Nasdaq Composite2,439.942,504.65-2.58%-8.01%
Russell 2000704.65721.60-2.35%-8.01%
Crude oil per barrel$92.69$97.91-5.33%-3.43%
10-yr. Treasury yield3.81%3.85%-1.14%-5.58%
Gold per troy ounce$897.70$865.703.70%7.12%

The correction is still very much alive

With Friday's close, the market correction continues, and there's no denying it's nasty.

The Dow is down 11% from its closing-high on Oct. 9. The Nasdaq Composite is down 14.7%.

The S&P 500 is down 10.5%, and the technology sector of the S&P 500 has fallen 9.5% just since the first of the year -- a shock given that the group was up nearly 16% for all of 2007.

The S&P 500 finished Friday's trading nearly 6% below its 200-day moving average. On Tuesday, the S&P was nearly 7% under its 200-day moving average. How the index trades against the 200-day moving average is one good way to gauge a market's health. Right now, it's not very good.

The index has not traded so far under its 200-day average since March 2003.

Things could be worse. Japan's Nikkei 225 Index ($N225) is down 19% since Oct. 11.

What can stop the market's bleeding?

A sense that the big financial companies have their troubles under control would be a welcome development.

They insist they do and have been able to raise billions of dollars in new capital.

More looks to be coming.

The Wall Street Journal reported late Friday that Saudi billionaire Prince Alwaleed bin Talal is about to put new money into Citigroup, along with other investors, including the China Development Bank, an investment arm of the Chinese government. The total investment may be as much as $10 billion.

While it isn't clear how much Prince Alwaleed will invest, the Chinese entity is expected to invest roughly $2 billion, one person told The Journal.

Prince Alwaleed's total stake in Citigroup is likely to remain below 5% in order to avoid regulatory scrutiny. However, given that Citi has a stock market value of $140 billion, even a 1% stake would end up being a significant sum of money, and a potential vote of confidence in the struggling bank.

Citigroup was up 1.6% Friday to $28.56 and jumped an additional 1.7% to $29.05 in after-hours trading on the investment news. It's down 3% this month after falling 47% in 2007.

Weekly changes for S&P 500 Index and sectors
CloseChg.Chg. for wk.Chg. for month2007 chg.
S&P 500 Index

1,401.02

-1.36%-0.75%-4.59%3.53%
Energy 576.81-1.46%-4.35%-4.35%32.38%
Materials 249.62-1.24%-3.93%-3.93%19.99%
Industrials330.81-1.98%-6.64%-6.64%9.83%
Consumer discretionary238.86-1.29%-7.96%-7.96%-14.32%
Consumer staples295.75-1.31%-1.27%-1.27%11.61%
Healthcare423.680.04%3.41%3.41%5.39%
Financials370.88-0.20%-5.41%-5.41%-20.84%
Information technology372.41-2.01%-9.53%-9.53%15.54%
Telecommunications156.76-2.81%-6.83%-6.83%8.46%
Utilities219.88-0.73%-0.73%1.74%15.81%

A good deal for Bank of America?

Bank of America and Countrywide executives were all smiles this morning in announcing the deal. But analysts and investors had mixed reactions to the merger news.

Bank of America is no stranger to Countrywide, having already invested $2 billion in the lender this summer.

"I hope Bank of America isn't throwing good money after bad," Eric Schopf, a fund manager with Hardesty Capital Management in Baltimore, told Bloomberg News. "They struck a deal that wasn't very attractive. Hopefully they can get it right the second time around."

Stock Charts (Year)

Bank of America
Graphical chart for BAC
Countrywide Financial
Graphical chart for CFC
Earlier this week, Countrywide denied rumors that it would have to declare bankruptcy because of its struggles with the housing slump and the subprime meltdown. The stock has plunged more than 80% over the past year.

Some analysts worried that Bank of America might have overpaid for its investment in Countrywide this summer.

"There's still plenty of risk involved," Bart Narter, senior analyst at consulting firm Celent, told The Associated Press. Lewis is "brave to do it," he said, "but I think that it's very likely down the road to be profitable, maybe not immediately, but long term."

Meanwhile, homebuilding-industry players welcomed the deal as a sign of financial-sector confidence in the real-estate market's prospects for a rebound.

The deal is "good for the housing sector," Hovnanian (HOV, news, msgs) CEO Ara Hovnanian told CNBC. Hovnanian believes the housing market is near a bottom and that Bank of America may be getting a good deal.

Continued: A deal for Washington Mutual?

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