bloomberg.com
10/07 16:25
U.S. Stocks Fall, Pushing S&P 500 to Its Lowest Close Since April 1997
By Robert Dieterich
New York, Oct. 7 (Bloomberg) -- U.S. stocks dropped, pushing the Standard & Poor's 500 Index to its lowest in more than five years. Banks and retailers led the decline on concern a slowing economy will drive up defaults and crimp consumer spending.
The S&P 500 followed the Dow Jones Industrial Average and Nasdaq Composite Index in breaching lows reached in July and August. General Electric Co., Citigroup Inc., and Wal-Mart Stores Inc. led the slide.
``Hopefully we're testing the bottom,'' said Harvey Hirschhorn, who helps oversee $1.5 billion in stock and bond funds for FleetBoston Financial Corp.'s Columbia Management Group. ``So far that test hasn't proved very favorable.'' <VBG>
The S&P 500 slid 15.26, or 1.9 percent, to 785.32, the lowest close since April 28, 1997. Its gauges of consumer and financial stocks contributed almost two thirds of the drop. The Nasdaq Composite Index slipped 20.24, or 1.8 percent, to 1119.66. The Dow Jones Industrial Average fell 105.08, or 1.4 percent, to 7423.32.
``There's continued uncertainty about the economy, Iraq, earnings, corporate governance, terrorism,'' said Hirschhorn, whose group manages $180 billion.
Declining stocks outnumbered gainers on the New York Stock Exchange by more than three to one. Trading totaled about 1.56 billion shares, 8 percent above the six-month daily average.
Earnings Concern
The S&P 500 Index, down 32 percent this year, is headed toward its third straight losing year. More than three U.S. companies have cut third-quarter earnings estimates for every one that has raised them, according to Bloomberg data.
Some investors were waiting to place new bets until they hear President George Bush's speech on Iraq, scheduled for this evening, said Michael Driscoll, a stock trader at Bear Stearns Cos.
``There's a gathering feeling that the market will go lower before it goes higher,'' said Tim Heekin, head trader at Thomas Weisel Partners in San Francisco. The index's drop below its July 23 low of 797.70 suggests a slide of another 6 percent is possible, according to the firm's analysis of trading patterns.
Analysts estimate that third-quarter earnings at companies in the S&P 500 grew an average 5.6 percent, compared with a forecast of 17 percent three months ago, according to Thomson First Call.
``People are hoping that as we get into the next three or four weeks, we'll at least get some supportive earnings, meaning earnings that are at least matching up'' with expectations, said Ned Riley, the chief investment officer for State Street Global Advisors, which oversees about $800 billion.
Columbia's Hirschhorn said he recently bought stocks and sold bonds in some of his funds.
Financials Drop
Financial stocks fell on concern their bad loans are rising. U.S., European and Canadian banks are poised to write off a record $130 billion in loans this year as economic growth slows, according to the consulting company Oliver, Wyman & Co.
Citigroup, the world's largest financial-services company, fell $1.25 to $26.73. Bank of America Corp. dropped $2.40 to $55.60.
``There are clearly a lot of issues weighing on the banks,'' Thomas McCandless, analyst at Keefe, Bruyette & Woods, said in an interview on Bloomberg Television. In addition to loan losses, banks are being hurt by slower than expected loan growth and a slump in investment banking.
Consumer-finance shares such as Household International Inc. slid after Goldman, Sachs & Co. cut its ratings on the group. Household dropped $1.41 to $23.25. Capital One Financial Corp. fell $2.32 to $28.06, and American Express Co. slid $1.93 to $26.60.
General Electric, which has the largest private-label credit card business, dropped $1.06 to $22.95, the biggest loser in the S&P 500.
Retailers Slide
Wal-Mart Stores led retailers lower, declining $1.40 to $50.35. Home Depot Inc. lost $1.59 to $24.21 and Lowes Cos. lost $2.39 to $37.47. AnnTaylor Stores Corp. dropped $1.40 to $20.60, and Gap Inc. slid 58 cents to $8.84.
Merrill Lynch & Co. analyst Daniel Barry said September sales at most retailers probably fell short of targets. Prudential Securities Inc. said merchants including AnnTaylor and Gap will earn less than expected because of sluggish spending and shipment delays from the shutdown of West Coast ports.
Sears, Roebuck & Co. tumbled $5.39, or 14 percent, to $32.25, the biggest drop in almost 15 years. The retailer said it earned 80 cents to 82 cents a share in the third quarter. Analysts expected 86 cents. The company also fired the head of its credit division, which is the biggest contributor to earnings.
UPS, FedEx Decline
United Parcel Service Inc. fell $2.25 to $59.35 and FedEx Corp. slid $2.01 to $49.05.
Morgan Stanley's James Valentine cut his rating to ``underweight'' from ``equal weight,'' saying their shares are more expensive than their historical averages. Both have outperformed the market this year, with United Parcel rising 13 percent through last Friday.
Cisco Systems Inc. slid 38 cents to $9.08, leading the Nasdaq lower. Analyst Natarajan Subrahmanyan at Goldman, Sachs & Co. cut his profit forecast for Cisco because spending on computer systems and phone equipment is weaker than expected.
AOL Time Warner Inc. fell 61 cents to $11.20. A transaction between the world's No. 1 media company and Oxygen Media Inc. is being probed by the U.S. Securities and Exchange Commission to see if revenue was booked at more than one AOL Time Warner unit, the Wall Street Journal said, citing people familiar with the matter.
The Russell 2000 Index of smaller stocks fell 9.70, or 2.8 percent, to 338.28. The Wilshire 5000 Total Market Index, the broadest measure of U.S. shares, declined 153.89, or 2 percent, to 7444.73. Based on changes in the Wilshire, the market value of U.S. stocks dropped by $183 billion |
