U.S. Stocks Fall After Service Industries Unexpectedly Shrink
By Michael Patterson
Feb. 5 (Bloomberg) -- U.S. stocks tumbled the most in three weeks after service industries fell to the lowest levels since 2001, reinforcing speculation the economy has tipped into a recession. (edit: But Hank told me, the economy is slowing but there will no recession as our economy is resilient. That statement seemed kind of like BS/DoubleSpeak to me, but hell i didn't want to exert myself and think about that, like i am an architect not an economist, so gees now who can i trust? George is getting frustrated! George is getting Mad!--George)
Exxon Mobil Corp., General Electric Co. and AT&T Inc. led declines in New York trading, and all 10 industry groups in the Standard & Poor's 500 Index retreated, after the Institute for Supply Management's index unexpectedly contracted in January. Goldman Sachs Group Inc. posted its biggest drop in two months on Oppenheimer & Co. analyst Meredith Whitney's downgrade of the largest securities firm.
``As the recession unfolds, then profits will disappoint,'' Stuart Schweitzer, who helps oversee $420 billion as the global markets strategist at JPMorgan Private Bank, said in a Bloomberg Television interview from New York. ``It's already under way.''
The S&P 500 lost 28.31, or 2.1 percent, to 1,352.51 at 12:48 p.m. in New York. The Dow Jones Industrial Average decreased 248.66, or 2 percent, to 12,386.66. The Nasdaq Composite Index slipped 42.07, or 1.8 percent, to 2,340.78. Shares also retreated in Asia and Europe.
About five stocks fell for every one that rose on the New York Stock Exchange after the ISM's non-manufacturing index, which reflects almost 90 percent of the economy, slumped to 41.9 from 54.4 the prior month. A reading of 50 is the dividing line between growth and contraction.
Global Impact
Shares also declined on signs the U.S. slowdown is spreading to Europe and Asia. Europe's service industries grew at the slowest pace in more than four years and retail sales dropped the most since 1995, reports showed today. Asian shares fell as Yamaha Motor Corp. said operating profit will slide for the first time in eight years amid falling U.S. demand.
GE, the second-largest U.S. company by market value, lost 69 cents to $34.68. AT&T, the nation's biggest phone company, declined $1.01 to $37.15.
The ISM published the data, which assesses retailers, banks and construction companies, more than an hour earlier than scheduled. The release time was changed because of concerns about a ``breach'' of embargoed information, ISM spokeswoman Andrea Waas said in a telephone interview.
Crude oil for March delivery fell 2.2 percent to $88.08 a barrel in New York, and prices for gasoline and heating oil retreated, after the ISM report bolstered speculation fuel demand will slow in the U.S., the world's biggest energy consumer. Gold and copper prices also declined, dragging down shares of mining companies.
Commodity Producers
Exxon Mobil, the biggest U.S. energy company, lost $1.94 to $83.50. Chevron Corp., the second-largest, declined $1.55 to $80.47. Freeport-McMoRan Copper & Gold Inc. retreated $3.12 to $88.06. Newmont Mining Corp. fell 57 cents to $50.34.
Goldman dropped $8.25, or 4.1 percent, to $192.55. The firm was cut to ``perform'' from ``outperform'' by Oppenheimer's Whitney. The stock's valuation ``will not be sustainable in a year when Goldman Sachs will probably deliver results that will not be substantially better than its peers,'' Whitney wrote in a note dated Feb. 4.
The S&P 500 has dropped 13 percent from its all-time high in October as evidence increased that declining home values, higher unemployment and tighter credit would push the world's biggest economy into a recession for the first time since 2001. The benchmark for U.S. equities has rebounded 3.5 percent from its 2008 low on Jan. 22 after two interest-rate cuts from the Federal Reserve boosted shares of financial companies.
`Very Contained'
``The economy is going to continue to slow,'' said Matthew Kaufler, who helps manage about $2.6 billion at Clover Capital Management in Rochester, New York. ``The market will still remain very contained for the foreseeable future.''
Banks and brokerages retreated today after Fitch Ratings said collateralized debt obligations may be downgraded as many as five levels. The biggest cuts will be to AAA rated CDOs that are based on credit-default swaps and aren't actively managed, according to ratings guidelines proposed by Fitch today.
Citigroup Inc., the biggest U.S. bank by assets, lost $1.26 to $27.96, paring its gain since Jan. 22 to 15 percent. Merrill Lynch & Co., the nation's third-largest securities firm, slid $2.39 to $55.34. The S&P 500 Financials Index retreated 2.8 percent. The 92-member gauge is still 10 percent above its four- year low on Jan. 18.
Traders boosted bets on Fed interest-rate cuts after the ISM report. Fed funds futures indicate a 100 percent chance policy makers will lower the target for overnight loans between banks by 0.5 percentage point to 2.5 percent by a March 18 policy meeting. That compares with 68 percent odds yesterday.
Fed Bank of Richmond President Jeffrey Lacker said today he sees ``the possibility of a mild recession'' and further reductions in interest rates ``may be warranted.''
Chipmakers Drop
Semiconductor companies in the S&P 500 fell 3.1 percent as a group after National Semiconductor Corp. cut a sales forecast because of lower-than-projected shipments to handset makers.
The maker of chips for devices such as Apple Inc.'s iPhone said revenue this quarter will be as much as $455 million. That's below the $484 million average estimate of analysts in a Bloomberg survey. The company on Dec. 6 forecast sales of $474 million to $495 million.
National Semiconductor shares lost $1.35 to $17.67. Texas Instruments Inc., the biggest maker of mobile-phone chips, dropped $1.16 to $30. Intel Corp., the world's largest chipmaker, lost 65 cents to $20.43.
Earnings Watch
Principal Financial Group Inc. and Lincoln National Corp. led insurers in the S&P 500 lower after reporting earnings that missed analysts' estimates because of investment losses.
Principal Financial, an Iowa-based life insurer and marketer of 401(k) plans, fell $6.74 to $54.07 after fourth-quarter profit dropped 85 percent. Lincoln National, the fourth-largest U.S. life insurer by assets, retreated $3.79 to $51.51 on a 70 percent decline in quarterly earnings.
Fourth-quarter profits at the 311 companies in the S&P 500 that reported results so far declined 23 percent on average, dragged down by losses at financial companies, according to data compiled today by Bloomberg. Still, 64 percent of the companies posted earnings that topped analysts' estimates, compared with 60 percent a year ago.
General Motors Corp. slipped 20 cents to $27.37. GMAC LLC, the lending company that General Motors sold to a hedge fund manager, lost $724 million in the fourth quarter because home buyers didn't keep up with their mortgage payments. A group led by Cerberus Capital Management bought a 51 percent stake in GMAC in 2006.
NYSE Euronext
NYSE Euronext dropped $8.76 to $73.97. The owner of securities exchanges on both sides of the Atlantic delayed some of its planned expense reductions and posted fourth-quarter profit that trailed the most optimistic analyst estimates.
Martin Marietta Materials Inc. fell $10.45 to $107.67. The second-largest U.S. supplier of construction sand and gravel posted fourth-quarter earnings that trailed analysts' estimates on fuel costs and bad weather. Vulcan Materials Co., a Birmingham, Alabama-based producer of highway construction materials, declined $4.24 to $71.20.
Las Vegas Sands Corp. climbed $10.79 to $92.24. The world's largest casino company by market value was raised to ``overweight'' from ``equal weight'' by Morgan Stanley, which said the fundamentals of its casino in Macau were ``robust.'' Wynn Resorts Ltd., which was also upgraded to ``overweight'' at Morgan Stanley, rallied $9.95 to $121.42.
KB Home climbed $1.05 to $27.21 after Bank of America Corp. raised its recommendation on the Los Angeles-based homebuilder to ``buy'' from ``neutral.''
'Better Affordability'
``Significantly better affordability drives demand,'' analysts including Michael R. Wood wrote in a note to clients dated Feb. 4. ``While we do not expect a spike in demand immediately, we expect that it will gradually improve over 2008.''
Whirlpool Corp. added $11.77 to $93.36. The world's largest appliance maker posted fourth-quarter profit that topped analysts' estimates on an increase in overseas sales and reduced costs following its acquisition of Maytag Corp.
The Chicago Board Options Exchange Volatility Index, known as the market's ``fear gauge'' because it tends to rise as stocks fall, increased 5.6 percent to 27.44. Higher readings on the so- called VIX, derived from prices paid for S&P 500 options, indicate traders expect bigger share-price swings.
To contact the reporter on this story: Michael Patterson in New York at mpatterson10@bloomberg.net .
Last Updated: February 5, 2008 12:50 EST |
