Weakness in financial stocks dragged the S&P 500 below 800 for the first time since November as Moody's warned of possible bank downgrades
U.S. stocks ended sharply lower Tuesday as the Dow industrials posted their lowest close since November and large-cap S&P 500 index fell below the 800 level. Concerns about the economy were driving investors out of equities and into gold and Treasury bonds.
The market's losses came as President Obama prepared to sign a $787 billion economic stimulus bill that many fear will not make much of a dent in solving the global recession, says S&P MarketScope. Investors also weighed news that the New York Fed's Empire State index plunging to a record low and that ratings agency Moody's threatened to lower ratings on some banks. Tottering automakers General Motors (GM) and Chrysler LLC were racing to ready survival plans for lawmakers.
On Tuesday, the 30-stock Dow Jones industrial average ended lower by 297.91 points, or 3.79%, at 7,552.60. The broad S&P 500 index was off 37.67 points, or 4.56%, at 789.17, its first close below 800 since November. The tech-heavy Nasdaq composite index shed 63.70 points, or 4.15%, to 1,470.66.
Market breadth was overwhelmingly negative. In late trading on the New York Stock Exchange, 29 stocks were lower in price for every two that advanced. The ratio on the Nasdaq was 22-4 negative. Trading was active. Financial, energy, tech, and building issues were off sharply.
Treasuries and gold were higher Tuesday in a flight to safety from falling stocks. The yield on the 10-year Treasury note fell to 2.64%, while gold jumped above $970 per ounce. The dollar index was solidly higher, while crude oil futures lower as investors worry about weak demand.
Weighing on the market Tuesday: News that the U.S. Empire State manufacturing index tumbled to a record low in February. Financial stocks were skidding after Moody's said it might downgrade banks with units in Eastern Europe.
President Barack Obama was expected to sign the economic stimulus bill in Denver Tuesday afternoon. The $787 billion plan tries to attack the nation's economic free fall on multiple fronts. It pumps money into infrastructure projects, health care, renewable energy development and conservation, with twin goals of short-term job production and longer-term economic viability.
On Wednesday in Arizona, Obama will unveil another part of his economic recovery effort -- a plan to help millions of homeowners fend off foreclosure.
According to a Wall Street Journal report, General Motors (GM) and Chrysler LLC are required to submit recovery plans to the U.S. government Tuesday as part of their agreement to receive billions of dollars in federal loans. Under terms of their federal loans, the GM and Chrysler plans are supposed to include agreements with the UAW on labor-cost reductions and deals with bondholders and other creditors for reducing their debt. President Obama's administration named Ron Bloom as a key adviser to its auto industry task force.
Sirius XM Radio (SIRI) signed a deal with Liberty Media (LINTA) whereby Liberty will invest $530 million in the form of loans to Sirius and its subsidiaries, and will receive an equity interest in Sirius. Upon completion of Liberty's investments, Sirius will issue Liberty 12.5 million preferred shares convertible into 40% of Sirius' common stock. In addition, Libert will receive seats on Sirius' board proportionate to its equity ownership.
Moody's Investors Service cut its credit ratings on MGIC Investment Corp. (MTG) and Radian Group (RDN) several notches to junk status because of deterioration in their franchise value, the likelihood of sustained losses for several years, and substantially limited access to capital.
Shares of Google (GOOG) fell Tuesday. ThinkEquity reportedly downgraded its opinion on the shares to Source of Funds from accumulate.
In economic news Tuesday, the U.S. NAHB homebuilder sentiment index rebounded to 9 in February, after making a new record low at 8 in January. The index was 20 a year ago.
"Though the index edged up marginally, it's still near record lows as the housing market remains mired in a deep recession, with foreclosure sales rampant," says Action Economics.
The U.S. Empire State index dove to a record low at -34.7 in February, compared to -22.2 in January, and is three times lower than the -11.7 a year ago, notes Action Economics. This is a tenth straight month the region's manufacturing has been in contraction. The employment index fell to -39.1 vs. -26.1. New orders dropped to -30.5 from -22.8, also a record low. Prices paid rose to -13.8 from -18.2, while prices received fell to -20.7 from -3.4.
Wall Street was bracing for reports later in the week on U.S. housing starts, import/export prices, industrial production, the producer and consumer price indexes, the Philadelphia Fed index, and the index of leading indicators.
European bank shares were under pressure Tuesday as Moody's reportedly said the recession in emerging European economies would be more severe than elsewhere due to large imbalances and would put the financial strength ratings of local banks and western parents under pressure.
Lloyds Banking Group plc (LYG) could be forced to write off a further swath of loans made by HBOS to hundreds of companies, after figures showed many of the loans are worth only a fraction of their original value, The Guardian reports. Further deterioration in bank's loans could force company management to call for further funds from the UK government.
The Bank of England said the U.K. may face an economic contraction in the first quarter equal to last quarter's 1.5% decline. Meanwhile, the ZEW economic think tank's monthly poll of German economic sentiment jumped to -5.8 from -31.0 in January, marking the largest increase in expectations since July 1993 and shooting past the -28 expected by analysts polled last week.
Among stocks in the news Tuesday, Wal-Mart (WMT) posted $1.03 vs. $1.03 (including a 2-cent charge) fourth-quarter underlying EPS from continuing operations on 1.6% higher Wal-Mart U.S. same-store sales, including fuel, and 1.7% higher total sales. The company sees $0.72-$0.77 first-quarter reported EPS, and EPS Of $3.45-$3.60 for fiscal 2010.
Teva Pharmaceutical Industries (TEVA) posted $0.76 vs. $0.69 fourth-quarter non-GAAP EPS on an 11% revenue rise. The company notes exchange rate differences negatively impacted sales in the 2008 fourth quarter by about 5%, and had a $28 million adverse affect on operating income compared to the 2007 fourth quarter.
Transocean Ltd. (RIG) posted $2.50 vs. $4.17 fourth-quarter EPS as $385 million in net charges offset a 57% revenue rise. The company's operating margins narrowed to 33.1% from 55.5%.
Medtronic (MDT) posted $0.71 vs. $0.63 third-quarter non-GAAP EPS on a 3% revenue rise (6% increase after adjusting for an unfavorable $110 million forex impact). The company sees fiscal 2009 EPS of $2.91-$2.95 on sales of $14.6 billion-$14.7 billion.
Smithfield Foods (SFD) said it would be restructuring its pork department. It expects to cut 1,800 jobs in the restructuring.
Illinois Tool Works (ITW) said operating revenue for the three-month period ended Jan. 31 fell 15%. The company cited increasingly more negative macro and end market trends in North America, Europe and Asia as the period progressed and forex impact. ITW sees first-quarter EPS from continuing operations of $0.26-$0.42 on an 11%-17% revenue decline. It sees 2009 EPS from continuing operations of $1.84-$2.48 on 6%-12% revenue decline.