Archive for January, 2009

Stocks stumble as investors fear worsening economy (AP)

Friday, January 30th, 2009 | Finance News

NEW YORK – Wall Street ended its worst January ever by stumbling again over the banking system and the economy.

The major indexes all fell sharply for the second straight day, leaving the Dow Jones industrial average and Standard & Poor's 500 index with record percentage drops for January — 8.84 percent and 8.57 percent, respectively. Some market watchers believe that's a bad omen for the rest of the year, as the market usually ends a year down after having fallen in January.

Investors began the day on edge about the economy and were further rattled by reports that the government's plans to help banks may have hit a snag. Investors have been hoping that the government would create what's being called a "bad bank" to buy financial companies' toxic assets, removing them from banks' balance sheets. But some in Washington suggested the administration may be re-examining that idea because of its cost.

"So many people were anticipating good announcements about the bad bank over the weekend, but now, not expecting any good news," said Anton Schutz, portfolio manager of the Burnham Financial Industries Fund and the Burnham Financial Services Fund.

Earlier in the day, investors found little solace in a milder-than-expected report on fourth-quarter economic activity. In fact, the report only heightened concerns that the economy is worsening.

Gross domestic product, the widely followed measure of the economy, shrank at a 3.8 percent pace in the final three months of 2008, the Commerce Department reported. That compared with a 0.5 percent decline the previous quarter.

Friday's reading was much better than the 5.4 percent drop economists expected. But many analysts suspect the economy is shrinking at an even faster pace in the first quarter. Weak earnings reports and rising job losses are helping to solidify that belief.

"We expected fourth quarter to be the worst of the recession," said Randy Frederick, director of trading and derivatives at Charles Schwab. "From an investor's perspective, they may see this stronger-than-expected report setting us up for the first quarter to be worse.

"Each time you get a report that indicates that maybe we hadn't bottomed out yet, it prolongs the recovery."

The Dow fell 148.15, or 1.82 percent, to 8,000.86 after falling 226 on Thursday on negative employment and housing news.

The S&P 500 fell 19.26, or 2.28 percent, Friday to 825.88, and the Nasdaq composite index fell 31.42, or 2.08 percent, to 1,476.42.

The Russell 2000 index of smaller companies fell 9.71, or 2.14 percent, to 443.53.

Declining issues outnumbered advancers by 3 to 1 on the New York Stock Exchange, where consolidated volume came to 5.22 billion shares, up from 4.87 billion on Thursday.

Volatility was high this week, with the market zigzagging on a mix of earnings and economic news as investors tried to determine what the rest of 2009 will bring. In the end, the Dow fell 0.90 percent for the week, while the S&P 500 fell 0.70 percent and the Nasdaq dipped 0.10 percent. It was the market's fourth straight losing week.

Friday's corporate earnings reports were anything but encouraging.

Evidence that consumers are cutting back on even the most basic of items came as Procter & Gamble Co. said sales in the fourth quarter dipped 3 percent on weakening demand for its products — which include Tide detergent, Olay skin cream and Crest toothpaste. The company also lowered its earnings projections for the full year, and said it expects sales to fall in the current quarter.

Meanwhile, two of the country's largest oil companies reported feeling the pain of sinking oil prices. Exxon Mobil Corp. said that it surpassed its own record for annual earnings by a U.S. company last year, but saw a big drop in profit during the fourth quarter. Chevron Corp.'s fourth-quarter results also suffered from the late-2008 plunge in oil prices.

Honda Motor Co. slashed its 2009 profit target by more than half as its earnings dropped 90 percent in the latest quarter.

Also Friday, Japanese electronics maker NEC Corp. said it will cut 20,000 jobs worldwide as it reported a $1.46 billion loss for the fourth quarter. The cuts are in addition to big staff reductions announced earlier this week by Starbucks Corp., Eastman Kodak, Allstate Corp. and others.

"The market is a forward-looking indicator, but the market sees nothing good in front of us," said Stu Schweitzer, global markets strategist at J.P. Morgan's Private Bank.

One bright spot came from Amazon.com Inc., which reported late Thursday that its fourth-quarter profit rose 9 percent and easily surpassed analysts' forecasts. The online retailer also provided an optimistic forecast for 2009.

Its shares soared more than 17 percent, adding $8.82 to $58.82.

After rising earlier in the day, Exxon and Chevron turned lower. Exxon closed down 52 cents to $76.48, while Chevron fell 10 cents to $70.52.

Procter & Gamble shares hit a four-year low of $54.24 before plunging $3.72, or 6.4 percent, to close at $54.50.

Bond prices were mixed. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 2.85 percent from 2.87 percent late Thursday. The yield on the three-month T-bill, considered one of the safest investments, dipped to 0.22 percent from 0.23 percent.

The dollar was mixed against other major currencies. Gold prices soared.

Light, sweet crude for March delivery rose 24 cents to settle at $41.68 a barrel on the New York Mercantile Exchange.

Overseas, Japan's Nikkei stock average fell 3.12 percent. Britain's FTSE 100 fell 0.97 percent, Germany's DAX index dropped 2.03 percent, and France's CAC-40 fell 1.19 percent.

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The Dow Jones industrial average closed the week down 76.70, or 0.90 percent, at 8,000.86. The Standard & Poor's 500 index fell 6.07, or 0.70 percent, to 825.88. The Nasdaq composite index lost 0.87, or 0.10 percent, closing at 1,476.42.

The Russell 2000 index, which tracks the performance of small company stocks, fell 0.83, or 0.17 percent, to 443.53.

The Dow Jones Wilshire 5000 Composite Index — a free-float weighted index that measures 5,000 U.S. based companies — ended at 8,335.64, down 49.49 points, or 0.59 percent, for the week. A year ago, the index was at 14,091.09.

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On the Net:

New York Stock Exchange: http://www.nyse.com

Nasdaq Stock Market: http://www.nasdaq.com

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GM could face U.S. bailout tax hit, seeks changes (Reuters)

Friday, January 30th, 2009 | Finance News

WASHINGTON (Reuters) –
General Motors Corp (GM.N) could face a multibillion-dollar tax hit under its $13.4 billion federal bailout, a scenario the automaker faces just weeks before it must file a restructuring plan with the government.

Two sources familiar with bailout terms said the company has asked Congress to address the matter in economic stimulus legislation, which is expected to be finalized by mid-February.

GM and its allies in Congress believe it makes little sense for the bailout to generate a massive cash liability, especially when the government demands the company cut expenses, according to the sources.

GM declined comment.

The House of Representatives made no tax changes for GM in its massive $825 billion stimulus package approved on Wednesday. However, the tax issue could be addressed in eventual negotiations with the Senate on a compromise stimulus bill.

The Senate will begin debating its version of the stimulus package next week.

Lawmakers have also discussed the issue with Treasury Department officials to see whether a fix should be handled administratively or through legislation, a congressional aide said. A decision from Treasury could come next week.

GM has lobbied members on the income tax liability, which is related to its use of stock to reduce debt and preserve liquidity, the sources said.

The company is trying to halve its $60 billion debt by offering equity to bondholders. GM also wants to fund part of a health care trust for retired union workers with shares, rather than cash.

Bailout legislation that died in Congress included a provision that would have allowed GM to avoid the tax bill, but the rescue package eventually approved by the White House and Treasury officials in December did not.

GM has received $9 billion of $13.4 billion in promised bailout loans from the government's corporate rescue fund. Chrysler received $4 billion.

Both companies must submit restructuring plans to the government by February 17 and demonstrate their longer-term viability by March 31.

Chrysler LLC, which is privately held and also received bailout funds, does not face a similar tax liability.

(Reporting by John Crawley; Editing by Bernard Orr)

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Economy, bank woes drag market to worst January ever (Reuters)

Friday, January 30th, 2009 | Finance News

NEW YORK (Reuters) –
Stocks closed out their worst January ever with another slide on Friday after data showed the economy contracted at the fastest pace in nearly 27 years in the fourth quarter.

Uncertainty about the fate of a plan by the Obama administration to relieve banks of money-losing assets added to the bearish tone, with Citigroup (C.N) plunging 9 percent and Bank of America (BAC.N) dropping 3 percent.

Procter & Gamble Co (PG.N), the maker of Pampers diapers, Gillette razors and Tide laundry detergent, was the Dow's top drag, sliding 6.4 percent, after its quarterly profit missed expectations. P&G also added its name to a growing list of companies cutting outlooks.

"We're in for another tough year," said Dean Barber, president of investment firm Barber Financial Group in Kansas City.

"You have consumer sentiment at an all-time low, job losses that have exceeded the total number of job losses in the '81-'82 recession, we're 13 months into the latest recession, so people feel bad."

The Dow Jones industrial average (.DJI) fell 148.15 points, or 1.82 percent, to 8,000.86. The Standard & Poor's 500 Index (.SPX) slid 19.26 points, or 2.28 percent, to 825.88. The Nasdaq Composite Index (.IXIC) tumbled 31.42 points, or 2.08 percent, to 1,476.42.

DOW, S&P OFF OVER 8 PERCENT IN JANUARY

Both the Dow and the benchmark S&P 500 (.SPX) suffered their worst January ever, with the Dow down 8.8 percent and the S&P down 8.6 percent. The Nasdaq dropped 6.4 percent in January.

January performance traditionally serves as a harbinger for stocks for the rest of the year.

Analysts said the sharp declines in the shares of companies traditionally considered better positioned to ride out an economic downturn underscored the severity of the pessimism.

For the week, the Dow declined 0.95 percent, while the S&P 500 dropped 0.73 percent, and the Nasdaq edged down 0.06 percent.

Goldman Sachs' chief U.S. equity strategist David Kostin said in a research note the brokerage expected the S&P 500 to retest its bear market low of November during the first quarter, before rising to their 1,100 year-end target.

The S&P 500 is up about 10 percent from the November 21 intraday low after starting 2009 up more than 20 percent.

P&G, CITIGROUP AND APPLE FALL

In Friday's session, Procter & Gamble Co (PG.N) tumbled $3.72 to $54.50 on the New York Stock Exchange.

Kraft Foods Inc (KFT.N) slid 4.2 percent to $28.05, making the food maker the third worst drag on the Dow, behind 3M Co (MMM.N) , a diversified manufacturer.

3M shares fell almost 5 percent to $53.79 after Barclays and JPMorgan analysts cut their price targets, a day after the company posted a drop in fourth-quarter profit and sales.

Among financial stocks, shares of Citigroup (C.N) slid 9 percent to $3.55, while shares of Bank of America (BAC.N) dropped 3 percent to $6.58. The S&P financial index (.GSPF) fell 2.5 percent, capping its 6th straight monthly slide.

U.S. policy-makers have yet to reach a consensus on how a U.S. government-run bad bank would work and the idea may not move forward, CNBC television reported, citing unnamed sources.

The Nasdaq's decline was led by a 3.1 percent slide in Apple (AAPL.O) shares to $90.13, and was only partly offset by a jump of 17.6 percent in Amazon.com (AMZN.O) to $58.82, following the online retailer's rosy outlook and holiday sales.

Another standout loser was Juniper Networks (JNPR.O), down more than 16 percent at $14.16, after the network equipment provider warned its first-quarter revenue and profit would fall far short of Wall Street's expectations.

Companies in the basic materials sector also sold off, sparking a 3.7 percent slide in the S&P materials index (.GSPM). Aluminum producer Alcoa Inc (AA.N) shed 7.7 percent to $7.79.

Volume was active on the New York Stock Exchange, where about 1.51 billion shares changed hands, above last year's estimated daily average volume of 1.49 billion shares, while on the Nasdaq, about 2.14 billion shares traded, below last year's daily average of 2.28 billion.

Decliners outnumbered gainers on the NYSE by a ratio of about 3 to 1, while on the Nasdaq, about nine stocks fell for every four that rose.

(Editing by Jan Paschal)

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