Spread of Housing Crisis Pushes Stocks Downward

The American stock market tumbled the most in four months after Countrywide Financial Corp.’s earnings prompted concern the housing crisis is spreading.Shares of homebuilders sank to their lowest since 2003 and financial companies dropped after Countrywide, the largest American mortgage lender, said more borrowers are falling behind on home-equity loan payments. DuPont Co., the third-biggest American chemical maker, posted its steepest decline in two years after sliding home sales cut demand for paint and countertops.The retreat accelerated after the chief executive officer of Countrywide, Angelo Mozilo, said “difficult” conditions caused by subprime mortgage defaults may persist, and demand is unlikely to rebound until 2009. The Dow Jones Industrial Average plunged 226 points, sparking a sell-off from Brazil to Canada.“What’s hanging over stocks is concern that the housing and subprime demise will spread,” the president of Partner Re Asset Management in Greenwich, Connecticut, John Davidson, said. “Earnings are not as strong as they were previously and there aren’t as many positive surprises.”The housing slump has weighed on companies reporting second-quarter earnings this month, hindering profits at Caterpillar Inc., Wachovia Corp., and Burlington Northern Santa Fe Corp. Speculation that demand for Apple Inc.’s iPhone is slowing and a decline in energy shares after oil decreased a third day also weighed on the market.The Standard & Poor’s 500 Index lost 30.53, or 2%, to 1511.04, its steepest retreat since March 13. The Dow average decreased 226.47, or 1.6%, to 13,716.95. The Nasdaq Composite Index slid 50.72, or 1.9%, to 2639.86.The rout in stocks boosted Treasury prices as investors sought the relative safety of American debt. The yield on the benchmark 10-year note fell 3 basis points, or 0.03 percentage point, to 4.92%. Yields move in the opposite direction as prices.Financial shares in the S&P 500 slid for a fifth day, the longest losing streak since February and the lowest level since September.Countrywide slumped $3.56, or 10%, to $30.50 for the steepest drop in the S&P 500 and its biggest decline since October 2004. The lender said second-quarter net income was 81 cents a share compared with $1.15 a share a year earlier. It was expected to earn 90 cents, the average of 13 analyst estimates compiled by Bloomberg.“We are experiencing home price depreciation almost like never before, with the exception of the Great Depression,” Mr. Mozilo said of the housing slump during a three-hour conference call with investors.Other financial firms dropped. JPMorgan Chase & Co., the third-biggest American bank, lost $1.81 to $45.34, reaching the lowest price since September 2006. Citigroup Inc., the largest American bank, fell $1.55 to $49.31.Countrywide is preparing for an increase in missed payments in prime loans, or those granted to borrowers with good credit histories. In the second-quarter, overdue payments cut profits by $388 million. The company set aside almost five times as much money for loan losses this quarter compared with a year earlier. Of the $292.9 million earmarked to cover losses, $181 million is related to prime home-equity loans.DuPont fell $3.36, or 6.3%, to $49.90 for the steepest decline in the Dow average. The company said earnings in the second quarter were $1.04 a share, missing the $1.07 a share average analyst estimate.DuPont’s “relation to homebuilders and the consumer is probably making people nervous,” a manager of $2.4 billion at Boston Advisors LLC, James Gaul, said. “It’s a big name and everybody knows it.”Homebuilders in S&P indexes declined 4.1% as a group as all 16 companies retreated. Lennar Corp., the largest American homebuilder, dropped 39 cents to $31.93. D.R. Horton Inc., the second-largest, fell 88 cents to $17.50.

Spread of Housing Crisis Pushes Stocks Downward

Spread of Housing Crisis Pushes Stocks Downward

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