NEW YORK - Wall Street wilted yesterday as investors awaiting next week's Federal Reserve meeting remained uneasy that fallout from the slumping housing market could bring more bank losses and pull the economy into recession.
Retreating oil prices and signs of strength in industries outside the financial sector could not keep the stock market from declining for a second straight day. Investors have entered December, usually a winning month on Wall Street, very cautiously - most expect to see lower rates when the Fed meets Tuesday, but the size of the cut, if any, is under debate.
Meanwhile, JPMorgan Chase & Co. downgraded major securities firms, warning that while further write-offs of bad mortgage debt might help the firms' stocks, longer-term concerns about their risk management might hurt their overall valuation. JPMorgan lowered its earnings estimates for some of Wall Street's biggest players: the Goldman Sachs Group Inc., Lehman Bros. Holdings Inc., Merrill Lynch & Co. Inc., and Morgan Stanley.
Those investment banks and other financial companies fell, including Washington Mutual Inc., Citigroup Inc., Bank of America Corp., the government-sponsored Freddie Mac and Fannie Mae, and JPMorgan itself. The sector has been dragging on the broader market since the summer.
"Earnings estimates for the fourth quarter are coming down, and a lot of that is because of the financial sector and the consumer-discretionary sector, which includes the home builders," said Brian Gendreau, investment strategist for ING Investment Management.
He said that a month ago, the consensus estimate for overall fourth-quarter earnings growth was about 10 percent; now, after warnings of subprime-mortgage-related losses from the financial sector, the estimate is 2.1 percent.
The Dow Jones industrial average fell 65.84, or 0.49 percent, to 13,248.73.
Broader stock indicators also dropped. The Standard & Poor's 500 index fell 9.63, or 0.65 percent, to 1,462.79, and the Nasdaq composite index fell 17.30, or 0.66 percent, to 2,619.83.
Bond prices also fell, giving back some of their recent sharp gains, but they remain supported by rate-cut expectations. The yield on the benchmark 10-year Treasury note, which moves opposite its price, rose to 3.90 percent from 3.85 percent late Monday.
Crude oil fell 99 cents to close at $88.32 per barrel on the New York Mercantile Exchange amid speculation that OPEC would raise production today and after a U.S. intelligence report concluded that Iran had halted its nuclear-weapons-development program in 2003.