The flurry of activity surrounding Countrywide Financial brought the largest one-day percentage drop since the stock market crash of 1987, turning up the already-high volume on fears about the state of the mortgage lending industry and its effects on other credit markets.
At one point, shares of Countrywide plummeted to a session low of $19.25 -- a drop of 21.3 percent for the day. The stock ultimately closed at $21.29, a 13 percent decline. Earlier, Merrill Lynch recommended its clients sell Countrywide stock, saying the mortgage lender could face bankruptcy if liquidity worsens.
Observing Countrywide Financial’s struggle, Craig Hester, CEO of Hester Capital Management, noted, "The liquidity crisis is now spilling over into the commercial paper market and that has impacted Countrywide today." Hester says “The fear is that this problem that originated in subprime is like a growing cancer. The uncertainty of not knowing where the next problem is going to emerge is just too much for investors to handle."
Other indices took a beating as well. The Dow Jones industrial average lost 167.45 points, or 1.29 percent, to end at 12,861.47 -- 8 percent below its record close and the first sub-13,000 close since April 24. The Nasdaq Composite Index dipped 40.29 points, or 1.61 percent, to close at 2,458.83. With the investment banking and brokerage sector weighing it down like an anchor, the Standard & Poor's 500 Index fell 19.84 points, or 1.39 percent, to finish at 1,406.70. The S&P is now 9.4 percent below its record high close less than a month ago and down 0.82 percent for the year, and could fall further, analysts warn.