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Wall Street fall after weak report on jobless claims, Bernanke comments on bank troubles

Wall Street fall after weak report on jobless claims, Bernanke comments on bank troubles

Wall Street fell sharply Thursday as investors, already concerned about a rise in unemployment claims, sold off when Federal Reserve Chairman Ben Bernanke said there could be some bank failures.
Bernanke, testifying before Congress, said that while the large U.S. banks will likely recover from the recent credit crisis, others could fail.
"Implying that some banks may fail stirs concerns for any investor who's familiar with financial and economic history," said Hugh Johnson, chairman and chief investment officer of Johnson Illington Advisors. "Investors have been very edgy about credit market conditions and banks' financial conditions. Very edgy. And this doesn't remove that edginess."
Earlier, stocks fell in response to a Labor Department report that first-time unemployment claims rose last week by 19,000 to 373,000, the highest level since late January.
"To consistently see claims up near 400,000, that's pretty telling often-times of a recession," said Scott Wren, equity strategist for A.G. Edwards & Sons. Wren said he still believes there's less than a 50 percent chance of a recession, but that it's clear employers are cautious about hiring.
In midday trading, the Dow dropped 131.96, or 1.04 percent, to 12,562.32.
Broader stock indicators also lost ground. The Standard & Poor's 500 index declined 13.63, or 0.99 percent, to 1,366.39, and the Nasdaq composite index lost 25.10, or 1.07 percent, to 2,328.68.
Bernanke in his testimony offered up some positive comments _ that inflation should not be a major worry, that the United States is nowhere near the stagflation scenario of the 1970s, and that the major banks will bounce back from the mortgage troubles slamming the industry. When stagflation is present, the economy is weak but inflation is accelerating.
But Wall Street was skeptical of Bernanke's fairly upbeat take on the economy _ particularly as oil prices surged above $101 a barrel _ and latched onto his admission that some banks could fail.
"Bernanke is about as skillful a Fed chairman as I have seen," said Johnson, who said his more than four-decade career spans six Fed chairmen. "But these times require a very, very skillful chairman. I don't believe I've seen times as challenging as these."
Crude oil jumped $1.59 to $101.23 a barrel on the New York Mercantile Exchange. Gold prices also advanced, hitting a record at $967 an ounce.
Government bonds rose as stocks slumped. The yield on the benchmark 10-year Treasury note, which moves opposite its price, sank to 3.71 percent from 3.85 percent late Wednesday.
Meanwhile, corporate news was downbeat. Sprint Nextel Corp. posted a $29.5 billion loss in the fourth quarter after writing down the remaining value of its Nextel Communications buy and losing customers. It also slashed its dividend, and shares tumbled 88 cents, or 9.6 percent, to $8.07.
Housing market news was dim. Thornburg Mortgage Inc. plunged after the mortgage lender said it has received margin calls _ calls for immediate repayment of debt _ on a portfolio of securities backed by alt-A mortgages. Alt-A mortgages are those given to customers with little credit history or minor credit problems.
Thornburg fell $2.12, or 18 percent, to $9.42.
And investors remain worried that there could be more problems revealed in the struggling financial sector. A few weeks after French bank Societe Generale uncovered a $7 billion losses due to the actions of a rogue trader, New York-based futures and options broker MF Global Ltd. said Thursday said it lost $141.5 million (euro93.6 million) after a broker traded more wheat contracts than he was allowed to.
MF Global dropped $4.79, or 16.4 percent, to $24.49.


Updated : 2021-05-10 01:42 GMT+08:00