New York – Wall Street ended a mildly erratic day slightly lower Thursday after anxiety about widening credit problems offset investor optimism about a $2 billion capital infusion into troubled mortgage lender Countrywide Financial Corp.
The market gave up a moderate early gain, but fluctuations were to be expected given the amount of uncertainty about the credit markets and the fact that stocks posted big gains Wednesday, pushing the Dow Jones industrials up 145 points.
Bank of America Corp. announced late Wednesday it will invest the money into the nation’s largest mortgage lender to help it better weather problems with defaulting subprime loans. The investment was seen as a way to not only prop up Countrywide but also prevent any further losses at the mortgage lender from hurting the underlying economy. Countrywide chief executive Angelo Mozilo expressed his optimism about the deal Thursday on CNBC, but when asked if the housing slump could cause a recession, he agreed.
The market will likely be trading nervously “until we get some clarity from the Fed,” said Jim Herrick, manager and director of equity trading at Baird & Co.
The Federal Reserve’s moves to ease the market’s credit concerns, including cash injections into the banking system and a lower discount lending rate to banks, have had some palliative effect on Wall Street.
“The big unknown is how widespread this problem is,” Herrick said.
The Countrywide CEO’s comments “probably didn’t help” the market, he said. “They’re the biggest lender in America.”
The market showed little response Thursday to policymakers’ infusion of another $17.25 billion into the banking system to help boost liquidity, adding to the $41.25 billion the central bank has injected since the beginning of last week.
The Dow fell 0.25, or less than 0.01 percent, to 13,235.88.
Broader indexes fell modestly. The Standard & Poor’s 500 index lost 1.57, or 0.11 percent, closing at 1,462.50, and the Nasdaq composite index fell 11.10, or 0.43 percent, to 2,541.70.
The Russell 2000 index of smaller companies fell 10.31, or 1.29 percent, to 788.25.
Though Bank of America’s move was reassuring to investors, a number of major banks and home lenders still face difficulties. On Wednesday, Lehman Brothers Holdings Inc. said it would close its BNC Mortgage unit and slash 1,200 jobs; HSBC Holdings PLC and Accredited Home Lenders Holding Co. also said they would eliminate jobs.
“Moving up or down a little is OK because I think investors need some time to digest all the news out there, and they are still really hoping the Federal Reserve will lower interest rates,” said Neil Massa, equity trader at John Hancock Funds. “You’re not seeing the rush to sell, nor the panic buying, that we’ve had before.”
