U.S. Stocks Drop on Economic Concern; Nucor, Transocean Retreat

Nov. 5 (Bloomberg) — U.S. stocks dropped after a report showing 157,000 job losses and falling production at the world’s largest steelmaker spurred concern the economy will worsen even as President-elect Barack Obama takes steps to stimulate growth.

Nucor Corp., the largest U.S.-based steel producer, fell 5.9 percent after ArcelorMittal doubled production cuts amid slowing demand. Transocean Inc., the world’s largest offshore oil driller, slid as much as 4.6 percent on profit that trailed the average analyst estimate. The market’s declines came a day after the biggest presidential Election Day gain in 24 years.

“I don’t know anyone who can say with any sort of real conviction that we’re in a bull market next year,” said Pat Becker Jr., chief investment officer at Becker Capital Management Inc. in Portland, Oregon, which oversees about $1.7 billion. “Bear markets can last years.”

The Standard & Poor’s 500 Index dropped 9.55 points, or 1 percent, to 996.2 at 10:40 a.m. in New York as a report showing a bigger-than-forecast contraction in service industries also weighed on stocks. The Dow Jones Industrial Average retreated 100.67, or 1.1 percent, to 9,524.61 and the Nasdaq Composite Index dropped 21.07, or 1.2 percent, to 1,759.05. More than three stocks fell for every two that rose on the New York Stock Exchange.

The retreat halted an 18 percent rebound from the S&P 500’s five-year low on Oct. 27. The benchmark for U.S. equities has lost 32 percent this year, the steepest annual plunge since 1937, and Obama will have to contend with an economy pummeled by the fastest contraction in manufacturing in 26 years and the lowest consumer confidence.

The report by ADP Employer Services showed more job cuts than economists had projected and precedes the Labor Department’s Nov. 11 release of employment data for October, expected to show U.S. payrolls shrank for a 10th straight month.

$6 Trillion

The S&P 500 has lost about 36 percent since it peaked at 1,565.15 on Oct. 9, 2007, as the U.S. economy contracted 0.3 percent last quarter and credit-related losses and writedowns by global financial firms approached $700 billion. More than $6 trillion was erased from U.S. equities this year by the worst financial crisis since the Great Depression.

Nucor lost $2.31 to $37.35. Luxembourg-based ArcelorMittal reported third-quarter profit that fell short of analyst estimates, said its global output will drop by more than 30 percent, and forecast fourth-quarter earnings will fall as much as 48 percent. The company’s New York-registered shares slumped 18 percent to $26.14.

Transocean Drops

Transocean fell as much as $3.91 to $80.61 even as rising oil prices during the third quarter boosted demand for deepwater rigs, contributing to a 14 percent increase in profit. Net income of $3.44 a share missed the average estimates of $3.59 in a Bloomberg survey.

The Institute for Supply Management’s non-manufacturing index, which covers almost 90 percent of the economy, dropped to 44.4 in October from 50.2 in September. A reading of 50 is the dividing line between growth and contraction. The median estimate was for a smaller decline to 47.

Most companies in the S&P 500 have managed to increase profits even as the economy slows. Of the 386 companies that reported third-quarter results so far, 232 posted higher earnings than in the year-earlier period. Still, profits in aggregate are down 7.4 percent after accounting for losses at financial companies.

Time Warner, Medco Gain

Time Warner Inc. added 25 cents to $11.08. The world’s largest media company reported third-quarter profit that beat the average analyst estimate. Time Warner lowered its 2008 profit forecast because of restructuring costs.

Medco Health Solutions Inc. climbed 7.6 percent to $40.89 for the second-biggest advance in the S&P 500. A surge in use of generic and mail-order prescription drugs fueled a 38 percent increase in third-quarter profit at the largest U.S. drug benefits manager.

General Motors Corp. added 24 cents, or 6 percent, to $5.96 for the biggest advance in the Dow average. GM, the biggest U.S. automaker, needs government aid because “time is very short” to stop its collapse, Roger Altman, an adviser to the automaker and Obama, said in an interview.

The S&P 500 Index may be on the cusp of a rally by Inauguration Day, based on the speed of its tumble from last year’s peak and the time it took stocks to gain before recessions ended in 1975, 1982 and 1991, data compiled by Bloomberg show. This year’s plunge in stocks suggests that equity investors anticipate an economic contraction as severe as the one that began under Richard Nixon that will end in July.

Recession Rallies

The S&P 500’s slump since last year’s high is the steepest for a comparable period since the gauge fell 43 percent in the 13 months ended in October 1974, Bloomberg data show.

The economy then was mired in a recession that lasted 16 months and ended in March 1975, five months after the equity market began its rebound. During the recessions of 1982 and 1991, the S&P 500 began to climb four months and five months before the economy started to recover, respectively.

Based on the market’s history of anticipating economic recoveries, the S&P 500 may embark on its next bull market in February, about a month after Obama’s inauguration on Jan. 20.

The president-elect’s pledge to spend on roads and bridges may help Caterpillar Inc. The world’s largest maker of bulldozers and excavators fell 63 cents to $41.62.

Delta Air Lines Co. and other airlines may face higher costs. Obama also has pledged to keep current limits on foreign ownership of U.S. airlines’ stock, and may accelerate air- traffic control upgrades and improve controllers’ working conditions, according to industry groups and unions. Delta lost 5 cents to $11.23.

Obama’s Plans

Drugmakers including Pfizer Inc. might not do so well as Obama wants to give Medicare, the federal health-insurance program for the elderly and disabled, authority to negotiate the price of medicines for its drug plans. Pfizer, the maker of cholesterol-lowering Lipitor, declined 2.5 percent to $17.95.

Stocks gained yesterday after the 17th straight decline in a key interest rate, a sign that as much as $3 trillion of emergency funds provided by governments to resuscitate bank lending are working. The London interbank offered rate, or Libor, that banks charge each other for three month loans in dollars fell again today to the lowest level since December 2004.

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