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

Nov. 12 (Bloomberg) — U.S. stocks fell for a third day as Best Buy Co.‘s warning of a “seismic” slowdown in spending and the Treasury’s plan to use bailout funds to bolster consumer credit stoked concern the economic slump is deepening.

Best Buy, the largest electronics retailer, lost as much as 13 percent after saying profit will decrease in “the most difficult climate we’ve ever seen.” Occidental Petroleum Corp. dropped 7.7 percent as crude sank below $57 a barrel, while American Express Co. tumbled 9.2 percent on a report the company may need government aid. The Standard & Poor’s 500 Financials Index slid to a 12-year low as the Treasury scrapped plans to buy mortgage assets and shifted focus to consumer credit.

“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 across the board.”

The S&P 500 fell 3.7 percent to 866.07 at 2:25 p.m. in New York. The Dow Jones Industrial Average retreated 280.6 points, or 3.2 percent, to 8,413.36. The Nasdaq Composite Index lost 3.9 percent to 1,519.26. About 11 stocks fell for each that rose on the New York Stock Exchange.

Economic Concern

The S&P 500’s decline every day this week pared its rebound from a five-year closing low on Oct. 27 to less than 2 percent. The stock benchmark is down 44 percent from its October 2007 record after the economy contracted in two of the last four quarters and profits for companies in the index extended a yearlong slump.

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 drag on global growth.

Best Buy declined for a seventh day, losing $1.81 to $22.07. 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.

Energy companies in the S&P 500 lost 5 percent as a group, while raw-material producers declined 4.5 percent collectively.

Oil sank as low as $56.13 a barrel 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, oil and gasoline led declines in the Reuters/Jefferies CRB Index of 19 raw materials.

Commodities Slump

Occidental Petroleum, the fourth-largest U.S. energy company, decreased $3.91 to $46.50. Exxon Mobil, the world’s biggest, slipped 2.5 percent to $70.81.

AK Steel Holding Corp. fell 20 percent to $8.24. The fourth- largest U.S. steelmaker said it’s temporarily idling operations at facilities in Ohio and Kentucky because of falling demand.

The Chicago Board Options Exchange Volatility Index climbed for a third straight day, adding 6.5 percent to 65.41. 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 5.5 percent and dropped below its lowest closing level since 1996. The measure of banks, brokerages and asset managers has fallen 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.

Goldman Sachs Group Inc., Citigroup Inc. and Fifth Third Bancorp dropped more than 7 percent each.

American Express Co. slumped 8.8 percent to $20.43, the most in the Dow average. 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 8.7 percent to $12.85 after saying it will fire 10 percent of its institutional securities staff and 9 percent from asset-management.

GM, Ford

General Motors Corp. rallied 22 cents, or 7.5 percent, to $3.14. House Speaker Nancy Pelosi urged Congress to protect the country’s carmaker from collapse. GM and Ford Motor Co. posted the two biggest 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.

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 17 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 33 percent to $4.60 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. Prologis Chief Executive Officer Jeffrey Schwartz resigned.

Qualcomm, Sprint

Qualcomm Inc. retreated 6.1 percent to $32.92. 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 4.9 percent to $296.24.

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 lost 4.1 percent.

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