Stocks Crushed as Fannie, Freddie Sink

The major indices were already weak, but a selloff in the mortgage buyers worsens the situation. Crude climbs, and the dollar slides. Frank Curzio fills you in (above).
Publish date:

Updated from 4:29 p.m. EDT

Stocks in New York sold off into the close Wednesday, as another steep drop for

Fannie Mae



Freddie Mac


worsened a session that was already weighed down by rising oil and cautious analyst comments on two big tech names.


Dow Jones Industrial Average

plunged 236.77 points, or 2.1%, to 11,147.44, and the

S&P 500

was down 29.01 points, or 2.3%, at 1244.68. The


gave back 59.55 points, or 2.6%, at 2234.89. With the decline, the S&P is now more than 20% below it's high reached last fall, putting it in bear market territory. The Dow and the Nasdaq crossed the line a week ago.

Leading the late slide were Fannie and Freddie, who both plunged on renewed worries about their capital situations. The move lower was sparked after Fannie priced a $3 billion sale of two-year debt at a highest-ever yield. Fannie fell 13%, and Freddie lost nearly 24%.

The Real Story Wrap: July 9

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Also, after a recent retreat, crude oil steadied, tacking on a penny to $136.05 a barrel. On Tuesday, it fell more than $5 a barrel. Oil had been up more than $1 earlier following reports on Iranian television that Iran has tested a long-range missile that could potentially reach Israel.

Heightened tensions between the two states contributed to oil reaching record levels over the past couple of weeks.

"The fundamentals are not as bullish as everyone is making them out to be," said Darin Newsome, senior commodities analyst at DTN. He said slowing demand for gasoline and heating oil indicates that crude could continue to go lower.

Newsome also pointed out that that longer-dated oil futures are more expensive than those with nearby expirations. "The market is saying, 'Store it, we'll pay you more for it later.'" Were demand continuing to rise, he said, the market would be willing to pay more in the near term to get supply onto the market, he said.

Recent rises in oil prices, he said, are indicative of headline chasing, which is distinct from the more meaningful changes in supply and demand. "The fundamentals, the spreads don't change," he said.

"The market probably got a little overweighted in the mid-$140s," said Tom Bentz, vice president and senior energy analyst at BNP Paribas Commodity Futures. He said that going into the weekend, there were some buyers anticipating potential disruptions from Hurricane Bertha or Iran. When nothing developed over the weekend, the oil market corrected, he said. Bentz said he sees support for oil prices near $132.

In technology, analyst actions caused more pain. RBC Capital cut its price target for tech bellwether


(CSCO) - Get Report

, sending that stock lower by 5.7%. UBS also said that Cisco will have trouble as the U.S. and European markets continue to slow.

At the same time, shares of Dow component


(INTC) - Get Report

decreased more than 5% after Friedman Billings Ramsey offered slightly conservative comments on the chipmaker's third quarter.

As for corporate earnings, following the last close,


(AA) - Get Report

posted a second-quarter profit that was lower than the year ago, but in line with expectations. Alcoa is the first Dow stock to report its numbers for the quarter. Still, its shares shed 2.4%.

Meanwhile, mortgage lender



, whose shares have lost nearly all their value, said it was selling most of its retail mortgage branches to Prospect Mortgage in an attempt to assuage regulators' concerns about its capital levels.

Elsewhere in the financial space,


(WB) - Get Report

caught an upgrade to neutral from Merrill Lynch. Even so, it fell 8%.

Before the session opened, mining and energy stocks also got the nod from analysts. Friedman Billings upgraded Alcoa and


(CCJ) - Get Report

to outperform, and UBS assigned buy ratings to

Steel Dynamics

(STLD) - Get Report



(NUE) - Get Report


Meanwhile, financial application software maker


(INTU) - Get Report

stumbled, as did Internet software and services company

Digital River

(DRIV) - Get Report

. Both suffered a Goldman Sachs downgrade to sell from neutral.

The U.S. government's weekly crude inventory survey showed stores of oil were lower by 5.8 million barrels, a wider decline than 1.9 million barrels the previous week. Gasoline inventories rose by 1 million barrels. Refinery utilization was unchanged at 89.2%.

The Mortgage Bankers Association announced this morning that its adjusted index of mortgage applications rose 7.5% for the week ended July 4. Fixed 30-year mortgage rates were up 10 basis points to 6.43%.

Treasury prices were stronger The 10-year note was up 18/32 price, yielding 3.81%, and the 30-year was off 17/32 to yield 4.42%. The dollar was falling vs. the euro, the yen and the pound.