U.S. Stocks Fall on Treasury Strategy Shift, Best Buy Forecast

09:30, 13 November 2008
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U.S. stocks fell for...

U.S. stocks fell for a third day as the Treasury`s plan to use bailout funds to shore up consumer lending and Best Buy Co.`s warning of a ``seismic`` slowdown in spending stoked concern the credit crisis is far from over, according to Bloomberg.

Citigroup Inc. and the Standard & Poor`s 500 Financials Index slid to 12-year lows as the Treasury scrapped plans to buy mortgage assets and shifted focus to consumer credit. American Express Co. tumbled 10 percent on a report the company may need government aid. Best Buy, the largest electronics retailer, lost 8 percent after saying profit will decrease in ``the most difficult climate we`ve ever seen.`` Occidental Petroleum Corp. dropped 11 percent as crude sank below $57 a barrel.

``It`s hard to get away from the drumbeat of negatives,`` said Liam Dalton, who oversees $1.3 billion as New York-based chief executive officer of Axiom Capital Management. Best Buy`s forecast cut is ``a further sign of the retrenchment of the consumer and spending that`s slowing very, very rapidly.``

The S&P 500 dropped 5.2 percent to 852.3 and lost 8.5 percent over the past three days. The Dow Jones Industrial Average retreated 411.3 points, or 4.7 percent, to 8,282.66. The Nasdaq Composite Index lost 5.2 percent to 1,499.21, a five-year low. More than 24 stocks fell for each that rose on the New York Stock Exchange.

Economic Concern

The S&P 500 is less than 0.5 percent above its lowest close in five years. The measure reached that level, 848.92, on Oct. 27 and rallied 18 percent in the following six days. Most of those gains have now been erased as companies from Blackstone Group Inc. to News Corp. reported weaker earnings and commodity prices tumbled.

The stock benchmark is down 45 percent from its October 2007 record. The index is ``almost certain`` to revisit its five-year low, according to JPMorgan Chase & Co. strategist Thomas J. Lee, who said such ``retests`` occurred in 86 percent of the bear markets since 1900.

About 1.5 billion shares changed hands on the floor of the NYSE, in line with the three-month daily average. Europe`s Dow Jones Stoxx 600 Index sank 3.3 percent and the MSCI Emerging Markets Index fell 4 percent.

Best Buy declined for a seventh day, losing $1.91 to $21.97. Profit for the year ending in February may be as low as $2.30 a share, the company said. Analysts projected $3.04, according to the average estimate in a Bloomberg survey.

Rival Circuit City Stores Inc. filed for bankruptcy protection on Nov. 10, while Macy`s Inc., the second-biggest U.S. department-store chain, projected profit declines today, sending its shares down 11 percent.

Energy Slump

Energy companies in the S&P 500 lost 7.3 percent as a group, while raw-material producers declined 6.4 percent collectively.

Oil sank 5.3 percent to $56.16 a barrel at the close of trading in New York on forecasts that tomorrow`s Energy Department report will show U.S. crude inventories grew last week amid decreased energy demand. Nickel, gasoline and crude led declines in the Reuters/Jefferies CRB Index of 19 raw materials.

Occidental Petroleum, the fourth-largest U.S. energy company, decreased $5.34 to $45.07. Exxon Mobil, the world`s biggest, slipped 5.1 percent to $68.93.

AK Steel Holding Corp. fell 25 percent to $7.73. The fourth-largest U.S. steelmaker said it`s temporarily idling operations at facilities in Ohio and Kentucky because of falling demand.

VIX Gains

The Chicago Board Options Exchange Volatility Index climbed for a third straight day, adding 8.2 percent to 66.46. The so- called VIX measures the cost of using options as insurance against declines in the S&P 500.

The S&P 500 Financials Index slid 6.9 percent to the lowest close since 1996. The measure of banks, brokerages and asset managers is down 57 percent in 2008.

Treasury and Federal Reserve officials are exploring a new ``facility`` to bolster the market for securities backed by assets, Treasury Secretary Henry Paulson said. Officials are considering using a portion of the $700 billion financial bailout money to ``encourage private investors to come back to this troubled market,`` he said.

`Heavy Burden`

``Illiquidity in this sector is raising the cost and reducing the availability of car loans, student loans and credit cards,`` Paulson said today in a speech at the Treasury in Washington. ``This is creating a heavy burden on the American people and reducing the number of jobs in our economy.``

Buying ``illiquid`` mortgage-related assets --the reason the Troubled Asset Relief Program was established a month ago -- is no longer being considered, he said.

Citigroup sank $1.16 to $9.64, while Bank of America Corp., Goldman Sachs Group Inc. and Fifth Third Bancorp dropped more than 9 percent each.

American Express Co. slumped $2.35 to $20.05. The credit- card company most dependent on capital markets for fundraising may have requested the government aid before it converted into a bank holding company two days ago, the Wall Street Journal reported, citing unidentified sources.

Morgan Stanley, which converted into a bank holding company in September, lost 15 percent to $11.94 after saying it will fire 10 percent of its institutional securities staff and 9 percent from asset-management.

Financials, which began the year as the biggest part of the S&P 500, fell behind consumer staples to become the fourth- largest today. The industry had been among the top three in the index since August 1995, according to Bloomberg data compiled on a monthly basis.

GM Gains

General Motors Corp. gained 16 cents, or 5.5 percent, to $3.08 after House Speaker Nancy Pelosi urged Congress to protect the country`s carmaker from collapse. GM and Ford Motor Co. were among the biggest of only 12 gains in the S&P 500.

Congressional Democrats are telling President George W. Bush to back an economic stimulus package that would provide federal aid to state governments and boost spending on unemployment assistance, food stamps and infrastructure projects.

Confidence in the world economy stayed near rock-bottom in November as a global recession loomed, a survey of Bloomberg users on six continents showed. The Bloomberg Professional Global Confidence Index was at 6.6 compared with 4 in October, the lowest since the survey started a year ago. A reading below 50 means pessimists outnumber optimists.

President-elect Barack Obama may inherit the worst U.S. recession in three decades, according to economists surveyed by Bloomberg News, as more than $918 billion in credit losses at banks, brokerages and insurers drag on global growth.

Recession Prediction

``We basically see the U.S. remaining in a recession through the first half of the year,`` Binky Chadha, New York- based chief U.S. equity strategist at Deutsche Bank AG, said on Bloomberg Television. ``Earnings are probably not going to hit bottom until the economy hits bottom, and even then with a bit of a lag.``

Third-quarter earnings decreased 19 percent on average for S&P 500 companies that have reported results, according to Bloomberg data. Profits for 2008 will drop an average 8.5 percent and rise 12 percent next year, based on a survey of analysts` estimates.

Prologis, the world`s largest warehouse developer, plunged 35 percent to $4.47 for the steepest decline in the S&P 500. The company cut its dividend and said it plans to halt new developments as the credit crisis worsens. Chief Executive Officer Jeffrey Schwartz resigned.

Qualcomm, Sprint

Qualcomm Inc. retreated 7.1 percent to $32.57. The biggest maker of mobile-phone chips has stopped hiring and is cutting some research projects after a ``dramatic`` contraction in chip orders from mobile-phone makers, Chief Executive Officer Paul Jacobs said.

Sprint Nextel Corp. slumped 23 percent to $1.95, the lowest since at least 1980. Merrill Lynch & Co. cut its forecast for shares of the third-largest U.S. mobile phone company by almost half to $3.10 on concern the slowing economy may stall a business rebound.

Google Inc. fell below $300 a share for the first time since 2005 after Citigroup Inc. analysts cut their profit estimates for the owner of the most popular Internet search engine and said online advertising growth will slow. The shares declined 6.6 percent to $291.

Technology spending worldwide will grow less than predicted next year as the financial crisis forces companies to trim budgets, IDC reported. Spending will rise 2.6 percent in 2009, down from an earlier estimate of 5.9 percent, the Framingham, Massachusetts-based research firm IDC said.

The S&P 500 Information Technology Index slid 5.1 percent to the lowest level since 2003.

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