FOX Business: The Power to Prosper
The December jobs report was shoved off of center stage on Friday as the markets dipped lower amid concerns about the consequences of a ruling against big banks that could have a wide-reaching impact on the housing market.
The Dow Jones Industrial Average fell 22.55 points, or 0.19%, to 11674.76, the Standard & Poor's 500 lost 2.35 points, or 0.18%, to 1271.50 and the Nasdaq Composite sank 6.72, or 0.25%, to 2703.17. The FOX 50 slipped 2.21 points, or 0.24%, to 911.22.
Selling began after a Massachusetts court ruled Wells Fargo (NYSE:WFC) and US Bancorp (NYSE:USB) didn't have the right to foreclose on a pair of homes because they securitized and repackaged the mortgages.
“I think the market was caught off guard by it,” said Nick Kalivas, vice president of financial research at MF Global. He added, “It’s emboldening the bears to some degree because this is going to slow everything down” in the housing market and “create a lot of uncertainty.”
While the markets landed firmly in the red, Wall Street recovered most of the ground from a midday selloff caused by the court decision. At their lows, the blue chips had been down nearly 100 points.
Still, more than half of the Dow's 30 stocks lost ground, led by JPMorgan Chase (NYSE:JPM) and Travelers (NYSE:TRV). The index's best performers were Boeing (NYSE:BA) and Pfizer (NYSE:PFE).
The Nasdaq Composite also posted modest losses as tech stocks such as eBay (NASDAQ:EBAY) and Microsoft (NASDAQ:MSFT) retreated.
Wall Street hit session lows as banking stocks like Bank of America (NYSE:BAC) and Regions Financial (NYSE:RF) took a hit after the top court in Massachusetts ruled against U.S. Bancorp and Wells Fargo, creating uncertainty about whether banks will be forced to buy back mortgages.
This ruling is concerning for the industry because it calls into question the practice of virtually all big banks to slice up mortgages and sell them back to investors. If all the courts agree with the Massachusetts decision, the banking industry’s exposure could be roughly $500 billion, according to Dick Bove, an influential banking analyst at Rochdale Securities.
Jobs Report a Mild Disappointment
The foreclosure ruling overshadowed the December jobs report, which ordinarily would be the biggest market-moving event. Yet Wall Street took the report in stride even though it showed nonfarm payrolls grew by 103,000 in December, badly missing forecasts from economists for growth of 175,000. Private-sector jobs grew by 113,000, trailing estimates for 180,000. An ADP report earlier this week showing private-sector jobs surged last month by nearly 300,000 significantly raised the bar for the more closely-watched government report.
On the other hand, the Labor Department sharply revised up its November job-creation figure to 71,000, up from just 39,000. Also, the markets appeared to be putting a bullish spin on the surprise plunge in the unemployment rate, which unexpectedly tumbled from 9.7% to 9.4% -- the lowest level since May 2009. That marks the biggest one-month drop since April 1998.
The bulls would argue the decline was due to more Americans finding jobs, but the bears can easily argue it was because discouraged people dropped out of the labor force altogether. (The report showed the percentage of Americans who are employed or are actively looking for a job fell to 64.3% -- the lowest level in 25 years).
Meanwhile, Wall Street mostly yawned at Fed chief Ben Bernanke's first appearance before the new Congress. Bernanke said he remains "unwaveringly committed" to maintaining price stability and he expects the pace of the economic recovery to pick up steam in the next year.
The markets similarly had little response to a new Fed report showing that after 20 months of declines, U.S. consumer credit expanded in November for the second time in a row. The Fed said credit rose by $1.35 billion in November and by an upwardly-revised $7 billion in October.
On the commodities front, crude oil gave back early gains to settle down 35 cents a barrel, or 0.40%, to $88.03 -- its lowest close since mid-December. Gold capped off its worst week since July by sinking $2.90 troy ounce, or 0.21%, to $1,368.50.
Liz Claiborne (NYSE:LIZ) plunged 13% a day after the apparel maker took an axe to its earnings forecast due to fashion misses and the competitive promotional environment. Liz Claiborne now sees a $40 million to $50 million increase in its second-half adjusted operating profit, down from $80 million previously.
American International Group’s (NYSE:AIG) recapitalization deal is done and all but certain to close on January 14, Reuters reported. Once that deal closes, the U.S. will own 92.1% of the bailed-out insurer. AIG is targeting March for the U.S. to sell off some of its stake, Reuters reported.
KB Home (NYSE:KBH) leaped 6% after the home builder revealed its first pretax profit in nearly four years. KB Home beat the Street with EPS of 23 cents and a 33% drop in revenue to $451 million. The company said its home deliveries declined by 37% to 1,918 homes, but its average selling price rose 14% to $232.500
Citigroup (NYSE:C) is trying to unload CitiFinancial, which is the largest consumer finance company in the U.S., the Financial Times reported. Citi has begun talks to potential bidders, likely private-equity groups and other finance companies, but no deal is imminent, the paper reported. CitiFinancial could fetch up to $1 billion and a sale would further shed CitiHoldings, which contains the bank's non-core assets.
The U.K.'s FTSE 100 fell 0.58% to 5984.33, Germany's DAX slipped 0.48% to 6947.84 and France's CAC 40 lost 0.99% to 3865.58.
In Asia, Japan's Nikkei 225 gained 0.11% to 10541, Hong Kong's Hang Seng declined 0.42% to 23686.50 and China's Shanghai Composite advanced 0.52% to 2838.80.