The Dow lost another 300 points and the S%26amp;P fell 2.9% to its lowest level since October 2006 on a series of major news and economic reports that all raise serious questions about the direction of the economy. The industrial average has now fallen more than 1,000 points 2008.
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Today’s Market
The Dow Jones Industrial Average fell 306.95 points, or 2.46% to 12159.21, the Standard %26amp; Poor’s 500 index lost 39.93 points, or 2.91% to 1333.26 and the Nasdaq Composite Index dropped 47.69, or 1.99%, to 2346.90. The consumer-friendly Fox 50 fell 23.92, or 2.42%, to 963.44.
Wall Street received new data today showing home construction fell by the second largest percentage on record and manufacturing in the Philadelphia region has contracted. The financials came under serious pressure from another monumental quarterly loss and worries about the capital levels of struggling bond insurers.
Selling accelerated in the hour ahead of the closing bell, with the Dow hitting its lowest level since March 2007. Reflecting the breadth of the sell-off, all 30 stocks on the Dow declined today.
Out of the eight trading days so far this year that the market has declined, seven have featured drops of 200 points or more.
Stocks fell sharply during Federal Reserve Chairman Ben Bernanke’s testimony to Congress, during which he endorsed the idea of a stimulus
package and more aggressive rate cuts to get the economy headed in the
right direction. A guideline for a short-term stimulus package is expected to be outlined by the White House tomorrow morning.
“I agree that fiscal action could be helpful in principle, as fiscal and monetary stimulus together may provide broader support for the economy than monetary policy actions alone,” Bernanke said.
However, Bernanke’s economic forecast differed with the pessimistic outlook many on Wall Street have taken in recent weeks leaving some to question if the Fed has fallen behind the curve. Bernanke said: “We’re not forecasting a recession.” Instead, the Fed sees economic growth slowing in 2008.
“His conjecture is almost boiler plate. People need something more tangible. The more he talks and states the same thing, the less confidence people have in him,” said Frank Davis, director of sales and trading at Lek Securities Corp.
Wall Street may have been hoping Bernanke would be more revealing about what the Federal Open Market Committee plans to do at its policy meeting next week.
“The market’s reaction is pretty poor. I think the market was looking for him to maybe tip his hand a little bit,” said Paul Nolte, director of investments at Hinsdale Investments.
The need for a stimulus plan was highlighted by some new economic data released this morning.
Manufacturing in the Philadelphia region fell sharply and contracted in December. The Philadelphia Federal Reserve’s new orders index fell to -15.2, compared to 12 a year ago. That’s the lowest level for the index since October 2001.
That report raised more fears that the economy is heading toward a recession.
“The Philly number today is telling you if we aren’t there yet, that’s where we’re headed,” said Davis.
Also, home construction last year fell by the second-largest percentage on record, according to new data from the Commerce Department. In December, housing starts fell by 14.2% to the lowest level in 15 years. Wall Street had been expecting a 5% decline for the month. Traders had been looking for construction to slow as home builders try to sell their bloated inventory of houses.
Wall Street is also dealing with more stress in the financial sector, the latest blow from Merrill Lynch’s (MER) near-$10 billion loss on subprime investments gone sour.
Merrill posted the worst quarterly loss in its 94-year history. The firm wrote down $11.5 billion in subprime-related
investments. Shares of Merrill lost 10% on the day.
Merrill posted a loss larger than analysts had been predicting. The brokerage said it lost $9.91 billion, or $12.01 a share, compared to a profit of $2.3 billion, or $2.41 a share, from the same period last year. Analysts estimated the brokerage would report a loss of $4.57, according to Thomson Financial.
Some traders were concerned that Merill still might not be done with writedowns.
“Merrill basically leaving the door open [to more writedowns] is really a thing that keeps the market on the defensive. People want to see closure to the subprime mess and it doesn’t seem to be coming anytime soon,” said Todd Clark, director of trading at Nollenberger Capital Partners.
Shares of other banks, such as Lehman Brothers (LEH) and Goldman Sachs (GS) also fell today.
“The financials are just getting killed again. We can’t sustain anything with that happening. This would have happened without Bernanke speaking,” said Peter Boockvar, equity strategist at Miller Tabak. The subprime debacle and resulting huge losses have weighed heavily on Wall Street since last summer. “It’s a big source of unease for investors. We just don’t know how deep this pool is. We could be in 4 feet of water or 40 feet of water but nobody knows how deep this thing goes,” said Nolte.One bright spot for the economy came
from the weekly employment report. Jobless claims fell by 21,000 last
week to the lowest levels in nearly a month. Economists interviewed by
Dow Jones
estimated an 18,000 gain in jobless claims. Bernanke also addressed inflation today, which rose by 4.1% in 2007.
“Overall and core inflation should moderate this year and next, so long as the public’s confidence in the Federal Reserve’s commitment to price stability is unshaken,” said Bernanke.
In recent trading, oil fell 99 cents to $89.37 a barrel in New York. Gold lost $3.50 to $878.50 an ounce in New York.
Corporate Movers
Washington Mutual (WM) missed analysts estimates with a fourth-quarter loss of $2.19 a share, larger than the $1.36 expected. Revenue also fell short of expectations.
American Micro Devices (AMD) posted a loss of $3.06 per share in the fourth quarter on revenue of $1.77 billion. Analysts polled by Thomson Financial expected the chipmaker to post revenue of $1.79 billion.
IBM (IBM) formally announced fourth-quarter earnings of $2.80 a share on $28.9 billion — both easily beating estimates. The tech giant gave preliminary results earlier in the week. IBM also said it sees 2008 earnings well above current forecasts. Shares of IBM rose in after-hours trading.
NYSE Euronext (NYX), the holding company for the New York Stock Exchange, released plans to acquire the privately-held American Stock Exchange for $260 million in stock. NYSE plans to close Amex’s Trinity Place Manhattan headquarters. The deal had been rumored for several weeks prior to today’s announcement.
Ambac (ABK) plunged another 50%
today on more bad news for the bond insurer. Moody’s Investor Services
put the company on review for a possible downgrade, citing the
retirement of its CEO and higher-than-expected losses. Ambac said it is
assessing the impact of Moody’s announcement on its previously
disclosed plan to raise capital. Rival bond insurers MBI (MBIA) and XL Capital (XL) also fell sharply today.
Lehman Brothers (LEH) is cutting 1,300 employees as part of a plan announced today to reduce its residential mortgage activities and end its warehousing operations. The company will take a $40 million charge due to consolidation moves.
General Motors (GM) was among the leaders on the Dow after the auto maker revealed its 2008 outlook and new information about its turnaround plan. GM said it sees 2008 auto sales at 73 million vehicles, two million more than it sold in 2007. However, the company said it sees U.S. sales falling in 2008. Its recent agreement with the United Auto Workers union will help GM save another $4 billion to $5 billion by 2011, the company said.
TD Ameritrade (AMTD) lost another 9% after the online brokerage posted earnings of 40 cents a share — beating expectations — and bumped up its yearly earnings forecast. The company said it sees 2008 earnings to come in between $1.23 and $1.41 a share. Analysts polled by Thomson Financial had been looking for first-quarter earnings of 39 cents a share.
Continental Airlines (CAL) delayed its final quarterly and year-end financial report but said it beat estimates with $3.52 billion in revenue and a $71 million profit. The delay is tied to pension-related liabilities that still need to be determined. Economists polled by Thomson Financial had been expecting revenue of $3.51 billion.
BlackRock (BLK) said its fourth-quarter profit surged 90% in the fourth quarter. The investment-management company earned $2.43 a share, compared to $1.28 a year ago. Estimates from Thomson Financial were for BlackRock to earn $2.15 a share.
PNC (PNC) had a 53% drop in the fourth quarter, the Pittsburgh bank said today. PNC said it earned 52 cents a share, compared to $1.27 a year ago. Excluding items the earnings came in at $1.07 a share, in line with analyst projections. Revenue rose 6.1% to $1.63 billion but fell short of estimates.
Bank of New York Mellon (BK) earned 45 cents a share in the fourth quarter, falling short of the 67 cents analysts polled by Thomson Financial were expecting. That represents a 68% decline in fourth-quarter profit from a year ago, which was a period when the bank had just sold its retail unit to JPMorgan (JPM) for $1.4 billion.
World Markets
The Dow Jones Euro Stoxx 50, a index tracking the 50 largest companies of Europe, fell 42.58 points, or 1.04%, to 4065.76. The FTSE 100, London’s benchmark index, dropped 40.50, or 0.68%, to 5902.40.France’s CAC 40 Index lost 68.30 points, or 1.31%, to 5157.09 and Germany’s DAX dropped 58.04, or 0.78%, to 7413.53.Asian markets rebounded overnight. Japan’s Nikkei 225 Index rose 278.94, or 2.07%, to 13783.45. Hong Kong’s Hang Seng Index rose 664.13, or 2.72%, to 25114.98.
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