Indexes gave up earlier gains Wednesday amid market concerns about corporate earnings and the U.S. stimulus bill
U.S. stocks finished lower Wednesday, as dismal earnings at Walt Disney Co. (DIS) and Kraft Foods (KFT) and ongoing concerns about the economy led to profit taking late in the session.
Wall Street is disturbed by Washington's efforts at economic stimulus legislation, says S&P MarketScope. President Obama urged quick action on the bill now before the Senate and rejected tax criticism of the measure as Democrats and Republicans battled over the plan.
"Wall Street sees the same old political games at a time of global emergency," notes S&P MarketScope.
Obama also moved to cap executive pay for firms receiving bailout funds.
Indexes had risen after reports the Institute for Supply Management's January nonmanufacturing index unexpectedly rose to 42.9 from 40.1 and ADP's private payrolls survey said employment fell by 522,000 in January, about what most economists believe Friday's nonfarm payrolls reading will show. Economists also see the U.S. unemployment rate rising to 7.2%.
On Wednesday, the 30-stock Dow Jones industrial average ended lower by 121.70 points, or 1.51%, at 7,956.66. The broad S&P 500 index was down 6.28 points, or 0.75%, at 832.23. The tech-heavy Nasdaq composite index edged lower by 1.25 points, or 0.08%, to 1,515.05.
On the New York Stock Exchange, 16 stocks were lower in price for every 14 that advanced. Nasdaq breadth was 15-12 negative. Trading was moderate.
Treasuries were mixed. The dollar index rose. Gold futures climbed. Energy futures were mixed.
Treasuries were mixed, with the yield on the 10-year note at 2.92%. The U.S. dollar index was higher. Gold futures were higher, while energy futures were mixed.
Obama took steps to rein in corporate compensation on Wednesday, imposing a $500,000 cap on executive pay for firms that take government bailout money and limiting lavish severance packages. "As part of the reforms we are announcing today, top executives at firms receiving extraordinary help from U.S. taxpayers will have their compensation capped at $500,000 -- a fraction of the salaries that have been reported recently," Obama said in prepared remarks.
Obama said the recession will turn into "a catastrophe" if the economic stimulus is not passed quickly, lobbying anew for the plan as its price tag climbed above $900 billion and drew more criticism. The president rejected several complaints about the plan, including arguments that tax cuts alone would solve the problem or that longer-term goals such as energy independence and health care reform should wait.
European Union trade commissioner Catherine Ashton told Reuters she was encouraged by Obama's decision to alter "Buy American" language in an economic stimulus bill. "Trade is part of the solution as it acts as a stimulus," she said as the U.S. Senate debates a nearly $900 billion economic stimulus plan that would allow only U.S.-made iron, steel and manufactured goods to be used in public works projects funded by the bill. The governments of both the European Union and Canada, worried about lost exports to the United States, sent letters to Congress on Monday urging the provision be dropped.
In economic news Wednesday, the U.S. ISM non-manufacturing composite index rose to 42.9 in January from 40.1 in December, with gains broadbased. The business activity index climbed to 44.2 from 38.9 previously. The employment index was little changed at 34.4 from 34.5. New orders improved to 41.6 from 38.9. Imports rose to 40.5 from 32.5. Prices paid rose to 42.5 from 36.1. The composite manufacturing and services index increased to 42.0 from 39.3.
ADP reported U.S. private payrolls dropped 522,000 in January, following the 659,000 plunge in December (revised from 693,000 previously). The goods producing sector lost another 243,000 jobs last month (a 24th straight month of declines), with a 160,000 drop in manufacturing. Construction jobs declined 83,000, and have been in decline for 22 consecutive months. Construction jobs are down 923,000 since the January 2007 peak. Service jobs declined 279,000.
Challenger, Gray & Christmas reported 241,700 in announced U.S. job cuts in January, up 222.4% compared to a year earlier, and up 45% compared to December. That's also the largest since January 2002's record 248,500. Obviously the labor market remains very weak, and traders look for further indication of such with today's ADP private payrolls survey and in Friday's employment release. Retailers led the cutbacks in January after the worst holiday season in over 40 years. Industrial-goods and computers were the next worse industries. Meanwhile, Challenger also announced 24,000 in hirings, more than double December's pace, boosted by Government.
The U.S. MBA mortgage market index rebounded 8.6% in data released earlier for the week ended Jan-30, along side an 11.2% bounce in the purchase index and a 15.8% increase in the refinancing index. This better round of data on the mortgage front came despite overall increases in average mortgage rates. The 30-year fixed rate rose 6 basis points to 5.28%, the 15-year fixed jumped 17 basis points to 5.15% and the 1-year ARM gained 13 basis points to 6.09%.
The eurozone services Purchasing Managers' Index of around 2,000 companies rose to 42.2 in January from 42.1 in December, but was below the 42.5 flash estimate, which was also the median forecast of 30 economists. The slight uptick is the first rise since August, even though it marks the eighth month the index has been below the 50 mark that divides growth from contraction. Meanwhile, December retail sales were unchanged against November and 1.6% lower than a year earlier, European Union statistics office Eurostat said.
The U.K. Nationwide building society said its consumer confidence index fell 8 points to 40 last month -- the lowest since the survey began in 2004.
Norges Bank cut Norway's benchmark interest rate by 50 basis point to 2.50%, in line with expectations. In the statement accompanying the rate announcement, Norges Bank noted that the domestic economic downturn may be deeper and longer than previously expected and that inflation risks falling too low.
Among companies in the news Wednesday, Walt Disney Co. posted $0.45 vs. $0.63 first-quarter EPS on an 8% revenue decline. The current quarter included a gain on the sale of investment in two pay TV services in Latin America, which resulted in a benefit of $0.04 per share. Wall Street was looking for EPS of $0.51. Disney's Consumer Products and Interactive Media segments posted revenue gains in the first quarter, but Media Networks, Parks & Resorts, and Studio Entertainment posted declines.
Electronic Arts (ERTS) posted $0.56 vs. $0.90 non-GAAP third-quarter EPS on flat revenue. Wall Street was looking for $0.88. As a part of an overall cost reduction program, the company is reducing its workforce by about 11% (1,100 people), closing 12 facilities, narrowing its product portfolio, and cutting other variable costs. Electronic Arts sees a fiscal 2009 non-GAAP loss of about $0.35 on about $4.1 billion in revenues, and fiscal 2010 non-GAAP EPS of about $1.00 on $4.3 billion in revenues.
Kraft Foods posted $0.11 vs. $0.38 fourth-quarter EPS as final costs related to its restructuring program and unrealized mark-to-market losses related to commodity hedging activities offset a 6.2% revenue rise. The company posted $0.43 fourth-quarter EPS (excluding items). Wall Street was looking for $0.44. Kraft expects 2009 organic revenue growth of approximately 3%, down from its previous estimate of at least 4%, and GAAP EPS of $1.88 vs. its $2.00 prior forecast, reflecting greater-than-anticipated negative impact from currency and pension costs.
Time Warner Inc. (TWX) posted a $4.47 fourth-quarter loss from continuing operations vs. $0.28 EPS on a 2.7% revenue drop. The company noted that the net impact of items was to decrease fourth-quarter 2008 results by $4.70 per share, and fourth-quarter 2007's by $0.01. Tim Warner sees 2009 adjusted EPS from continuing operations to be around flat compared to adjusted EPS of $0.66 in 2008, which reflects the impact of approximately $250 million in restructuring charges that the company anticipates incurring in 2009, related to restructurings at AOL and Warner Bros.
Alcatel-Lucent (ALU) reported an $0.81 adjusted fourth-quarter loss per ADS vs. a $0.03 loss on a 5.3% revenue drop. The company noted that the 2008 fourth quarter included an impairment charge of €934 million for goodwill and other intangible assets not related to the Lucent combination. Alcatel-Lucent reiterated its 2009 guidance: it expects the global telecommunications equipment and related services market to be down 8%-12% at constant currency in 2009; it continues to anticipate adjusted operating profit around break-even in 2009.
Panasonic Corp. (PC) posted third-quarter operating profit of 26.4 billion Japanese yen vs. 165.4 billion yen on a 20% sales drop. Panasonic cut its 8.5 billion yen fiscal 2009 net sales on a consolidated basis forecast to 7.75 billion yen, and its consolidated operating profit view from 340 billion yen to 60 billion yen. It plans to decrease its year-end dividend from 22.5 yen per common share to 7.5 yen.