U.S. Stocks Decline, Led By Fannie, Freddie; Hershey Retreats

By Eric Martin

Aug. 18 (Bloomberg) -- U.S. stocks declined the most in more than a week, led by banking and real estate shares, as growing speculation the government will bail out Fannie Mae and Freddie Mac rattled the mortgage market.

Freddie Mac and Fannie Mae slumped to the lowest levels in almost two decades, losing more than 22 percent, after Barron's said shareholders of the biggest U.S. home-loan financiers would be wiped out in a Treasury rescue. Lennar Corp. and Ryland Group Inc. led a 5.5 percent drop by builders. Hershey Co. retreated the most since 2002 after the chocolate maker said price increases will curb growth.

The Standard & Poor's 500 Index lost 19.60 points, or 1.5 percent, to 1,278.60 as 23 of 24 industry groups declined. The Dow Jones Industrial Average retreated 180.51, or 1.6 percent, to 11,479.39 as all 30 companies fell. The Nasdaq Composite Index slumped 35.54, or 1.5 percent, to 2,416.98. Seven stocks dropped for every two that advanced on the New York Stock Exchange.

``Every day, there's the possibility there could be some type of disaster in the financials,'' said Eric Green, the Cherry Hill, New Jersey-based director of research at Penn Capital Management, which manages $4.5 billion. Fannie Mae and Freddie Mac are the ``major lenders for the housing market in the United States, so bad news there usually affects the homebuilders and all of the financials.''

About 986 million shares traded on the NYSE, the fewest for a full trading session since Dec. 27 and 29 percent less than the three-month average.

$500 Billion in Losses

The S&P 500 has dropped 13 percent this year as the biggest U.S. housing slump since the Great Depression slowed consumer spending and spurred turmoil in mortgage markets that saddled banks with more than $500 billion of losses. The benchmark index for U.S. equities has rallied 5.2 percent from an almost three- year low on July 15.

Banks and brokerages in the S&P 500 staged their biggest one-day rally on July 16 after the government announced plans to shore up Fannie Mae and Freddie Mac's financing. The S&P 500 Financials Index gained 19 percent since the measures were disclosed through last week.

Stocks advanced on Aug. 15, sending the S&P 500 to a third weekly gain. MBIA Inc. and Ambac Financial Group Inc. climbed after the largest bond insurers had their credit ratings affirmed and a report showed unexpected growth in New York manufacturing.

Lowest in Two Decades

Fannie Mae today lost $1.76, or 22 percent, to $6.15, the lowest price since May 1989, and Freddie Mac dropped $1.46, or 25 percent, to $4.39, a price last seen in January 1991. Homebuilders in S&P indexes slumped as much as 6 percent. Lennar fell 86 cents, or 7.3 percent, to $10.96. Ryland retreated $1.67, or 7.7 percent, to $19.94. Financial shares in the S&P 500 slumped 3.6 percent, the most among 10 industries.

Hershey dropped $3.91, or 9.4 percent, to $37.71. The nation's largest chocolate maker boosted U.S. prices by an average 10 percent to help counter rising cocoa, packaging, energy and shipping expenses. Commodity costs will probably climb twice as fast in 2009 as in 2008, and hedging and marketing expenses will also advance, Hershey said.

Citigroup Inc.'s Tobias Levkovich cut his year-end forecast for the S&P 500 by 4.8 percent to 1,475, citing the ``unsettled credit environment.''

``Credit conditions have gotten worse,'' Levkovich, Citigroup's chief U.S. equity strategist, said in a Bloomberg Television interview. ``That's not good for industrial activity. It's not good for capital spending.''

No Sign of Recovery

General Motors Corp., the largest U.S. automaker, fell the most in the Dow, dropping 82 cents, or 7.3 percent, to $10.36. Chief Executive Officer Rick Wagoner said he's not yet seeing signs of a recovery in the U.S. economy or in vehicle sales following the recent decline in oil prices.

``It still feels to me like we're in it,'' the CEO of the world's largest automaker said, referring to the sluggish economy that helped push GM to $15.5 billion in second-quarter losses.

SanDisk Corp. slumped 10 percent, the most since July 22, to $15.84. Investors should sell the biggest maker of memory cards for digital cameras following their 15 percent gain this month, Citigroup analysts said.

Lowe's Cos. gained 4 cents to $24.54, the highest since June 5. The world's second-largest home-improvement retailer reported profit that fell less than analysts estimated after consumers spent their tax-rebate checks. Full-year profit may reach $1.56 a share, Lowe's said, a smaller decline than the retailer had thought. Analysts estimated $1.50.

Home Depot Inc., its bigger competitor that reports results tomorrow, lost 57 cents to $26.96.

UnionBanCal Corp. gained $7.69 to $73.18. Mitsubishi UFJ Financial Group Inc. increased its bid for the California bank that dodged the subprime lending crisis to $3.5 billion. Mitsubishi UFJ offered $73.50 a share for the 35 percent of UnionBanCal it doesn't already own.

To contact the reporter on this story: Eric Martin in New York at emartin21@bloomberg.net.