U.S. stocks tumbled Wednesday, sending the Standard & Poor's 500 Index into its first bear market since 2002, on growing concern the biggest mortgage finance companies may not weather the housing slump.
Fannie Mae and Freddie Mac led financial shares to their biggest decline in six years after Fannie's borrowing costs surged on concern it won't be able to fund its business. Cisco Systems dropped to the lowest level since September 2006 and Intel slid to a six-month low on analyst predictions that a slowing economy may hurt sales. Bank of America and Citigroup fell as Credit Suisse AG said 40 percent of the biggest U.S. lenders may need to cut dividends or raise more capital.
The S&P 500 lost 29.01 points, or 2.3 percent, to a two-year low of 1,244.69, with a third of the drop occurring in the last 20 minutes of trading. The Dow Jones industrial average and Nasdaq Composite Index also fell more than 2 percent each. Almost four stocks declined for each that rose on the New York Stock Exchange.
The S&P 500 extended its retreat from an October record to more than the 20 percent threshold that signals the start of a so-called bear market. The Dow has fallen 21 percent from its October all-time high and closed in a bear market on July 2.
The S&P 500 has had eight previous bear markets since 1962, according to data compiled by Birinyi Associates, a stock research firm based in Westport, Conn.
Fannie Mae slipped $2.31, or 13 percent, to $15.31, its lowest price in 16 years. Freddie Mac lost $3.20, or 24 percent, to $10.26, also the lowest since 1992.
“The market's not giving any of these financial companies a break,” Sean Clark, the Philadelphia-based chief investment officer of Clark Capital Management Group, which oversees $1.3 billion. Investors are “looking at more writedowns that could be huge and upcoming. The clarity just isn't there.”
Bank of America slid $1.48, or 6.3 percent, to $22.06. Credit Suisse analysts lowered 2008 earnings-per-share estimates 17 percent across the bank industry. Wachovia Corp.'s price target was cut to $14 a share from $18.
Wachovia Corp., the fourth-biggest U.S. lender, fell $1.25, or 8 percent, to $14.29.
Banks may be forced to slash their dividends or raise “more expensive and dilutive forms of capital over the next few quarters,” Credit Suisse said.