Wall Street declines after rally as Freddie Mac swings to wider-than-expected 2nd-quarter loss
NEW YORK (AP) — Stocks declined Wednesday, a day after a big rally, as troubled mortgage financier Freddie Mac reported a larger-than-expected second-quarter loss and touched off fresh concerns about the financial sector.
Freddie Mac, which substantially increased its reserves for souring loans, lost about three times what Wall Street expected on a per-share basis. The company also announced that it expects to cut its third-quarter dividend as it seeks to preserve capital.
The well-being of Freddie Mac and sister company Fannie Mae is a big concern on Wall Street as the government-chartered companies hold or back nearly half of all U.S. mortgage debt. The companies have lost billions of dollars due to failed loans over the past year. The federal government has pledged to help both companies with larger lines of credit or stock purchases if necessary.
The problems at both companies have contributed to the volatility on Wall Street in recent months. But the market appeared calm early Wednesday, a day after the Dow Jones industrial average soared more than 330 points on a reassuring economic statement from the Federal Reserve and another drop in oil prices. A retrenchment after such steep gains wasn’t unexpected.
In midmorning trading, the Dow fell 59.03, or 0.51 percent, to 11,556.74.
Broader stock indicators also declined. The Standard & Poor’s 500 index fell 6.02, or 0.47 percent, to 1,278.86, and the Nasdaq composite index fell 11.28, or 0.48 percent, to 2,338.55.
Bonds rose. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 4.05 percent from 4.02 percent late Tuesday. The dollar was mixed against other major currencies, while gold prices rose.
Investors are also keeping an eye on crude oil after prices fell sharply in the last two sessions. Light, sweet crude rose 48 cents to $119.65 on the New York Mercantile Exchange.
In other earnings news, Time Warner Inc. said second-quarter profits fell 26 percent on declining subscriber fees at its AOL online unit and lower ad revenue at the Time publishing business. The results beat analysts’ expectations, however. Time Warner fell 34 cents, or 2.3 percent, to $14.54.
Sprint Nextel fell 94 cents, or 11 percent, to $7.61 after posting a second-quarter loss on severance and other costs.
Qwest Communications International Inc. said earnings fell 24 percent in the second quarter. The results, however, also narrowly beat expectations. The stock fell 11 cents, or 3.1 percent, to $3.48.
Declining issues outnumbered advancers by about 9 to 5 on the New York Stock Exchange, where volume came to 183.8 million shares.
The Russell 2000 index of smaller companies fell 5.08, or 0.70 percent, to 715.96.
Overseas, Japan’s Nikkei stock average rose 2.63 percent. In afternoon trading, Britain’s FTSE 100 rose 0.16 percent, Germany’s DAX index fell 0.16 percent and France’s CAC-40 rose 0.75 percent.