US stocks fell on Tuesday, as bank shares tumbled on fresh worries about the economy and further losses stemming from the mortgage crisis. News that J.P. Morgan Chase has racked up $1.5 billion of losses so far this quarter on mortgage-linked assets sent the bank's stock down more than 9 percent.
The bank had largely escaped the worst of the credit crunch and its losses highlighted concerns that turmoil in financial markets may deepen. Goldman Sachs also weighed on the financial sector after a number of analysts, including Oppenheimer & Co's Meredith Whitney and Deutsche Bank's Michael Mayo, cut their earnings estimates for the investment bank. The KBW index of bank shares fell 6.4 percent.
Dallas Federal Reserve Bank President Richard Fisher added to negative sentiment when he said the US economy was in a prolonged period of slow growth and could shrink later this year. "Today is just a bad day in financials - J.P. Morgan being down that much is really creating the drag here," said Paul Nolte, director of investments at Hinsdale Associates, in Hinsdale, Illinois.
The Dow Jones industrial average fell 139.88 points, or 1.19 percent, to 11,642.47, while the Standard & Poor's 500 Index slid 15.73 points, or 1.21 percent, to 1,289.59. The Nasdaq Composite Index dropped 9.34 points, or 0.38 percent, to 2,430.61.
J.P. Morgan Chase said in a regulatory filing it expects continued deterioration in credit trends for its consumer portfolios and that could require additional allowances for loan losses. In addition, Lehman Brothers cut its 2008 profit forecast for J.P. Morgan. J.P. Morgan's shares fell 9.5 percent to $37.92.
Goldman Sachs' shares fell 6 percent to $167.30 after Deutsche Bank's Mayo cut his rating on Goldman Sachs to "hold" from "buy" as well as cutting his third-quarter profit estimate and price target on the stock. Mayo said Goldman was not immune to capital market pressures, especially given its exposure to weaker European growth. Oppenheimer & Co's Whitney also cut her third-quarter and 2008 earnings estimates.
Shares of Wachovia Corp slid 12.1 percent to $16, after the fourth-largest US bank increased its previously reported second-quarter loss late on Monday to cover costs to settle a probe of auction-rate securities sales. US crude oil for September delivery fell $1.44 to settle at $113.01 a barrel on the New York Mercantile Exchange on concerns about a slowing economy and a drop in demand.
Airlines were a bright spot after J.P. Morgan Securities upgraded its ratings on some of the largest US airlines. The sharp drop in oil prices, combined with reduced flight schedules and surging revenue from extra baggage fees, could help the industry return to profitability next year, J.P. Morgan Securities said.
US Airways Group shares jumped 11.9 percent to $9.39 on the NYSE. Trading volume was low on the New York Stock Exchange, with about 1.12 billion shares changing hands, sharply below last year's estimated daily average of roughly 1.90 billion, while on Nasdaq, about 2.09 billion shares traded, also below last year's daily average of 2.17 billion. Declining stocks outnumbered advancing ones by a ratio of about 2 to 1 on the NYSE and by 4 to 3 on the Nasdaq.