Stocks Down on Bank Woes and Oil Price Increase (cost of hatred and fear)

[Mister E]

By MICHAEL M. GRYNBAUM
Published: June 21, 2008

Who cast a dark spell on Wall Street?

The Dow Jones industrials tumbled more than 220.40 points ? falling below 12,000 for the first time since March ? as a host of options and futures contracts reached their expiration date, a financial ritual known to investors as ?quadruple witching.?

Investors scrambled to take profits ahead of the 4 p.m. ?witching hour,? when contracts expire and prices are set in stone. The result: a volatile, occasionally violent day in the markets that left shares of financial firms and big businesses battered.

The sell-off capped a dreary week on Wall Street, where investors got spooked by inflation fears and continuing woes at investment banks. The Dow, down nearly 3.7 percent for the week, staggered back toward its low for the year.

The broader Standard & Poor?s 500-stock index was down about 1.85 percent on Friday and 3 percent for the week, while the technology-heavy Nasdaq slipped 2.27 percent.

Friday?s losses came as oil prices rose, reversing Thursday?s declines. Crude oil futures in New York traded up $2.69, to $134.62 a barrel. Analysts speculated that the rise resulted from media reports of increased tensions between Israel and Iran which could, in the long run, decrease the supply of Middle Eastern crude.

Dreary reports on the prospects of regional banks, which have been battered by the tight credit market, also weighed down the major indexes. ?People don?t know the extent of the damage,? said David Kovacs, an investment strategist at Turner Investment Partners in Berwyn, Pa. In many cases, he said, investors are barely aware that the regional banks exist.

Big banks felt the pain: shares of Bank of America, Citigroup, Lehman Brothers, Royal Bank of Scotland and UBS all fell. Merrill Lynch lost nearly 5 percent.

As the markets career toward their March lows, Wall Street has been forced to acknowledge that the resolution of the Bear Stearns collapse has not solved all the financial problems facing the economy. Even as analysts suggest the recession may be lighter and shorter than previously feared, expensive oil and high inflation have roared back into the picture.

This week?s sell-off may also reflect the varied reaction to a series of hawkish speeches from bankers at the Federal Reserve. The bond market is now pricing in an interest rate increase by the end of the summer, following remarks from the Fed chairman Ben S. Bernanke, among others, that focused on the threat of inflation.

But as bond yields went up, the stock market went down, and now the Fed appears to be trying to damp down expectations of a near-term rate increase. The back-and-forth has resulted in jitters across the investment landscape, where direction and guidance have lacked in recent weeks.

On Friday, investors were also rattled after Moody?s Investors Service, the marquee ratings firm, issued downgrades on the credit ratings of MBIA and Ambac, the monoline insurance agencies that have been the subject of much consternation among market participants in recent months. MBIA?s shares dropped 10 percent.

Shares of Ford Motor, the venerable automaker, dropped 7 percent after the company said that it would probably lose money for a fourth consecutive year in 2009, reversing prior forecasts that the company could break even. The company also said it would delay a new pickup truck model by two months.

http://www.nytimes.com/2008/06/21/bu...tml?8au&emc=au