U.S. stocks tumbled, erasing yesterday’s gains, as Fitch Ratings said further contagion from Europe’s debt crisis will pose a risk to American banks and amid concern higher oil prices will hamper economic growth.
Financial shares led Standard & Poor’s 500 Index losses as Citigroup Inc. (C) and Morgan Stanley dropped at least 4.1 percent. Dell Inc. (DELL) sank 3.2 percent as the personal computer maker told investors to expect slower sales growth for the rest of the year. Abercrombie & Fitch Co. (ANF) tumbled 14 percent as profit at the clothing retailer trailed estimates. Rambus Inc. (RMBS) plunged 61 percent after losing a jury trial against Micron Technology Inc. (MU) and Hynix Semiconductor Inc. Micron surged 23 percent.
The S&P 500 slid 1.7 percent to 1,236.91 at 4 p.m. New York time. The Dow Jones Industrial Average fell 190.57 points, or 1.6 percent, to 11,905.59. Oil rose above $100 a barrel.
“It’s fear of the unknown spooking the market,” Madelynn Matlock, who helps oversee about $14.5 billion at Huntington Asset Advisors in Cincinnati, said in a telephone interview. “There may be more exposure to Europe out there than people really think even if banks think they are covered. It’s going to be a tough market for quite a while,” she said. “Increasing oil prices is a concern because it’s like a tax on the consumer.”
Stocks extended losses after Fitch said that while U.S. lenders have “manageable direct exposures” to Greece, Ireland, Italy, Portugal and Spain, further turmoil in those markets poses a “serious risk.” Equities also fell after the Bank of England Governor Mervyn King said Britain faces a “markedly weaker” outlook for the economy as Europe’s crisis threatens global growth.
Financial Shares Tumble
Diversified financial companies slumped the most among 24 industries in the S&P 500, losing 3.9 percent as a group. Citigroup decreased 4.1 percent to $26.86. Morgan Stanley (MS) sank 8 percent to $14.66.
JPMorgan Chase & Co. (JPM) and Goldman Sachs Group Inc. (GS), among the world’s biggest traders of credit derivatives, disclosed to shareholders that they have sold protection on more than $5 trillion of debt globally. Just don’t ask them how much of that was issued by Greece, Italy, Ireland, Portugal and Spain, known as the GIIPS.
As concerns mount that those countries may not be creditworthy, investors are being kept in the dark about how much risk U.S. banks face from a default. Firms including Goldman Sachs and JPMorgan don’t provide a full picture of potential losses and gains in such a scenario, giving only net numbers or ex
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