U.S. Stocks Drop on Concern Over Worsening Economy; GM Slumps
Nov. 11 (Bloomberg) — U.S. stocks dropped for a second day as a deteriorating outlook for American industry and oil’s decline below $60 a barrel signaled the recession may deepen.
General Motors Corp. tumbled to the lowest price since 1942 as the automaker crept closer to bankruptcy, while Tyco International Ltd., the world’s largest maker of security systems, sank the most in five years on a profit forecast that trailed analysts’ estimates. Prudential Financial Inc. slid 11 percent as Goldman Sachs Group Inc. said investment losses may force insurers to raise more capital and threaten credit ratings. Exxon Mobil Corp. slumped as much as 3.3 percent as crude declined on speculation demand will slow.
“The profit picture of 2009 is likely to be revised lower,” said Mike Ryan, head of wealth management research for the Americas at UBS Financial Services Inc. “We’re going to continue to see a stalemate in the equity market and a lot of volatility churning around at these levels.”
The Standard & Poor’s 500 Index dropped 2.4 percent to 897.12 at 10:37 a.m. in New York. The Dow Jones Industrial Average lost 200.72 points, or 2.3 percent, to 8,669.82, while the Nasdaq Composite Index fell 2.3 percent to 1,579.95.
Financials and raw material producers led the S&P 500 to a 39 percent retreat this year as profits for the world’s biggest banks slumped and commodities tumbled. Credit Suisse lowered its mid-2009 target for the S&P 500 to 1,050 from 1,200.
Europe’s Dow Jones Stoxx 600 Index lost 3.6 percent and the MSCI Asia Pacific Index declined 3.5 percent.
The S&P 500 dropped yesterday on a worsening profit outlook for companies, including Goldman Sachs and Google Inc. Third- quarter earnings shrank 17 percent for S&P 500 companies that reported results, according to Bloomberg data. Profits for 2008 will decrease an average 8.5 percent and rise 12 percent next year, based on a survey of analysts’ estimates.
“We’re going to see a lot of corporate grief,” said Harvey Pitt, former chairman of the Securities and Exchange Commission and chief executive officer of Kalorama Partners. “We’ll see companies laying off a lot of people and the market reflecting a lack of confidence in a lot of companies’ values.”
GM dropped for a fifth straight day, losing as much as 18 percent to $2.75, the lowest price since December 1942, according to Global Financial Data in Los Angeles. The largest U.S. automaker, burning cash as U.S. sales slide, is being pushed closer to bankruptcy as it waits to learn whether the auto industry will win a new round of government loans.
Tyco losing 12 percent to $22.24. The company said fiscal 2009 and first-quarter profit will trail analysts’ estimates, hurt by a higher U.S. dollar and slowing global economies.
Financial stocks in the S&P 500 slumped 2.6 percent after Goldman Sachs reduced its rating on the life-insurance industry to “cautious” from “neutral.” The analysts advised selling shares of Prudential, Lincoln National Corp., Principal Financial Group Inc. and Hartford Financial Services Group Inc. on concern the companies will need to raise more capital and their credit ratings may get cut.
Prudential slid $4.03 to $26.92. The S&P 500 Insurance Index declined 3.5 percent.
American Express Co. lost 6.3 percent to $22.48. The company won U.S. Federal Reserve approval to become a commercial bank, which may give it access to the Treasury’s $250 billion bank rescue program. Worsening credit losses will continue to plague the largest U.S. credit-card company by purchases, said Oppenheimer & Co. analyst Meredith Whitney.
Yesterday’s revised bailout of American International Group Inc. marked the first time cash from the rescue fund Congress created last month has been committed to a failing company. Banks around the world lost more than $900 billion since the middle of last year as forecloses reached record highs and complex, illiquid securities backed by mortgage loans plunged in value.
Energy companies and raw-material producers in the S&P 500 fell 3.3 percent and 4.2 percent respectively.
Exxon Mobil declined 2.6 percent to $72.11. Chevron Corp. slumped 1.8 percent to $72.27. Peabody Energy Corp., the largest U.S. coal producer, retreated 8.4 percent for the steepest decline in the S&P 500 Energy Index.
Crude oil fell below $60 a barrel in New York amid speculation the International Energy Agency will lower its 2009 demand forecast as slowing economic growth cuts fuel consumption.
Tyson Foods Inc. slumped 20 percent to $5.38. The second- largest U.S. chicken producer was downgraded to “underweight” from “overweight” at JPMorgan Chase & Co., which said the stock may drop 40 percent as losses next year put the company in danger of violating debt agreements.
Toll Brothers Inc. lost 4 percent to $18.19. The largest U.S. luxury homebuilder reported its 10th straight quarterly revenue decline as home prices plunged and consumer confidence fell. Homebuilding revenue dropped to about $691 million in the fiscal fourth quarter from $1.17 billion a year earlier.
Fannie Mae, Freddie Mac and housing industry officials plan a new mortgage modification program designed to cut payments for hundreds of thousands of homeowners facing foreclosure, according to people briefed on the matter.
Under the proposal, mortgage servicers will work with borrowers to reduce monthly payments to 38 percent of their income, a level considered a threshold for affordability, using a combination of lower principals, interest-rate reductions and extensions, the people said.