U.S. Stocks Retreat on Recession Concern; Alcoa Shares Tumble

Oct. 8 (Bloomberg) — U.S. stocks fell for a sixth day as unprecedented interest-rate cuts by six central banks failed to convince investors the global economy will avoid a recession.

Alcoa Inc., the largest U.S. aluminum producer, tumbled 14 percent as a reduction in manufacturing caused by the credit crisis left the company with earnings that trailed analyst estimates. J.C. Penney Co. and Target Corp. dropped as much as 7.2 percent after same-store sales slumped in September. Russia, Indonesia, Ukraine and Romania shut their stock exchanges and Brazilian stocks fell to the lowest in two years in the worst week for emerging markets in at least two decades.

The Standard & Poor’s 500 Index lost 9.8 points, or 1 percent, to 986.43 at 11:09 a.m. in New York. The Dow Jones Industrial Average retreated 126.4, or 1.3 percent, to 9,320.71. The Nasdaq Composite Index decreased 0.4 percent to 1,747.8. Three stocks fell for every two that rose on the New York Stock Exchange.

“The uncomfortable reality is that this mess is going to take more time than anyone wants to come to grips with,” said Matthew Kaufler, a fund manager at Rochester, New York-based Clover Capital Management Inc., which oversees $2.6 billion. “For the first time in couple of decades, we have the prospect of a consumer recession.”

The S&P 500’s six-day stretch of declines is the longest since April 2002. The gauge’s 15 percent slide from Sept. 30 through yesterday was its third-steepest on record, according to Bespoke Investment Group LLC, a Harrison, New York-based research firm. The bigger declines from five straight losses occurred in 1932.

Global Slump

The MSCI World Index of 23 developed markets extended its five-day retreat to more than 14 percent, the worst since the market crash of 1987.

The dollar weakened and 10-year Treasury yields exceeded two-year notes by the most since 2004, signaling investors remain cautious about economic prospects.

The Fed, European Central Bank and four other central banks lowered interest rates in an unprecedented, emergency coordinated bid to ease the economic effects of the financial crisis. The Fed cut its benchmark rate by a half point to 1.5 percent and said the ECB and central banks of the U.K., Canada, Sweden and Switzerland are also reducing borrowing costs.

Bank of America dropped $2.11 to $21.66. The bank that’s buying Merrill Lynch & Co. sold 455 million shares for $22 each, 8 percent less than yesterday’s closing price of $23.77. The shares fell 26 percent in New York Stock Exchange composite trading Oct. 7, the biggest drop in at least 28 years, after the bank slashed its dividend in half.

The world’s major banks may need $675 billion in fresh capital over the next several years to recover from a credit crisis that shows few signs of abating, the International Monetary Fund said yesterday.

Short Sales

Today is the last day of a U.S. Securities and Exchange Commission rule banning short sales in more than 980 financial companies. Since it was announced Sept. 18, companies covered by the rule are down an average of 16 percent, according to data compiled by Bloomberg.

Earnings at S&P 500 companies probably dropped on average of 5.6 percent in the third quarter, according to analysts’ estimates compiled by Bloomberg.

Financial companies are forecast to lead the decline in profits with a 64 percent decrease, followed by an 11 percent slide in earnings at retailers, hoteliers, restaurant chains and other so-called consumer discretionary companies.

At the open of exchanges today, the S&P 500 had tumbled 36 percent from its record a year ago, leaving it valued at 19 times the earnings of its companies. Europe’s Dow Jones Stoxx 600 Index, which has lost 35 percent this year, was valued at 10 times the reported earnings of its companies as of yesterday, the cheapest since Bloomberg began compiling the data in January 2002. The MSCI World Index was valued at 12.4 times profit yesterday, the cheapest since at least 1995.

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