Banks stocks lead market lower, ending 4-day rally
NEW YORK (AP) — Stocks fell Thursday, ending a four-day rally, after regulators took action against a former Goldman Sachs subsidiary over its mortgage and foreclosure practices. Traders were also nervous that a jobs report due out Friday could revive worries of another recession in the U.S.
Goldman Sachs fell 3.5 percent after the Federal Reserve ordered the bank to review foreclosure practices at Litton Loan Servicing, saying there was a “pattern of misconduct and negligence” at the unit. Bank stocks fell more than the rest of the market as investors worried about regulatory moves against other banks. Financial stocks in the S&P 500 dropped 2.4 percent, the most of the 10 company groups that make up the index.
“There’s obviously a lot of fear in the marketplace,” said Ann Miletti, managing director and senior portfolio manager at Wells Capital Management. “Right now, the market’s just lacking confidence.”
The Dow Jones industrial average fell 119.96 points, or 1 percent, to close at 11,493.57. It rose as many as 103 points shortly after 10 a.m., when a key manufacturing report showed evidence of growth in August. Analyst had expected a decline.
The gains didn’t last. By 10:30 a.m. indexes were trading mixed and stayed that way until 1:30 p.m., when the Fed announced its action against Goldman Sachs. Stocks drifted lower for the rest of the day, with bank stocks losing the most.
The Federal Reserve said there were “deficient practices” in mortgage loan servicing and the processing of foreclosures at Goldman’s former Litton unit. Goldman also reached a settlement with a New York state banking regulator over Litton in which it agreed to stop controversial practices such as the “robo-signing” of documents. That settlement was also announced Thursday.
Other banks followed Goldman lower. Citigroup Inc. lost 3.4 percent and PNC Financial Services Group Inc. fell 3.2 percent. Bank of America Corp., which is facing many lawsuits over its dealings in mortgage-backed securities, also fell 3.2 percent.
The regulatory actions showed that problems related to the mortgage crisis in 2008 remain far from over, said Quincy Krosby, market strategist at Prudential Financial. Krosby also said investors were nervous ahead of the Labor Department’s jobs report due out Friday.
The Standard & Poor’s 500 index fell 14.47 points, or 1.2 percent, to 1,204.42. The Nasdaq composite index fell 33.42, or 1.3 percent, to 2,546.04.
The Dow, S&P and Nasdaq all had their worst August since 2001 after fears of an economic slowdown in the U.S. and debt issues in Europe put investors on edge.
Trading volume was relatively light at 4.3 billion shares. Many traders were on vacation. Low volume suggests that relatively few investors were driving the market’s gains and losses.
Rob Lutts, president and chief investment officer of Cabot Money Management, said he expected volume to remain very low until early next week, when many traders return to work after Labor Day. “That’s when we’ll see what’s really going on,” Lutts said.
SAIC Inc. fell 13.5 percent, the most in the S&P 500, after the technology company issued a full-year earnings forecast that was below analysts’ expectations. The company, which provides engineering and technology services to the military and other agencies, cited tightening government budgets.
Retailers rose after reporting strong sales last month, despite wild swings in the stock market and worries about the economy. August is an important month for back-to-school shopping, which can account for up to 25 percent of retailers’ annual revenue. Macy’s Inc. rose 2.1 percent; Costco Wholesale Corp. rose 1.2 percent.
About three stocks fell for every one that rose on the New York Stock Exchange.