Major indexes fell to their lowest levels in over a decade Thursday after news of GM's dire financial straits. Citi shares traded below $1 during the session
U.S. stocks resumed their sell-off Thursday, finishing sharply and broadly lower on weakness in financial stocks and General Motors (GM). The Standard & Poor's 500-stock index closed at its lowest level since September, 1996, and the Dow Jones industrial average posted its lowest close since April, 1997.
The sell-off followed a stock-market rally Wednesday -- the first winning session since Feb. 24 -- and preceded Friday's release of the employment report for February, which will likely show no signs of a letup in the labor market's broad decline.
On Thursday, the 30-stock Dow Jones industrial average finished lower by 281.40 points, or 4.09%, at 6,594.44. The broad S&P 500 index was down 30.32 points, or 4.25%, at 682.55. The tech-heavy Nasdaq composite index shed 54.15 points, or 4.00%, to 1,299.59. On the New York Stock Exchange, 29 stocks were lower for every two that advanced. Nasdaq breadth was 23-4 negative.
By breaking below 700, the S&P 500 breached a level that some technical traders had hoped would hold. "It's a total breakdown in the technical aspect of the market that is continuing to feed on itself," says Peter Cardillo, chief market economist at Avalon Partners.
Bonds and gold rose on safe-haven buying. The dollar index rose after two European central banks cut interest rates. Crude oil futures fell.
The market remained jittery Thursday about the auto and financial sectors. Market sentiment was slammed by the latest update on GM's dire financial condition, including the possibility of bankruptcy for the troubled giant. Financial stocks were hit with steep declines, including a drop in Citigroup's (C) stock price to under $1 during the session. The shares finished the session down 9.7% at $1.02.
What's weighing on the market is uncertainty, says Michael Yoshikami, president and chief investment strategist at YCMNET Advisors -- uncertainty about government policy, Friday's jobs report and the possibility of more economic stimulus from the Chinese government.
"The market is pricing in the worst of what could happen in the economy," Yoshikami says. "People are just unbelievably concerned."
Investors were disappointed Chinese Premier Wen Jiabao did not announce a new economic stimulus plan; Wen said China would increase imports, and predicted 8% GDP growth.
Federal Reserve Governor Donald Kohn said it would be too risky to let American International Group (AIG) fail. Treasury Secretary Timothy Geithner defended President Obama's economic plans in front of the House Budget Committee.
Thursday brought a mixed batch of U.S. economic data: January factory Orders fell a less than expected 1.9%; weekly initial jobless claims fell 31,000 to 639,000; and fourth-quarter productivity fell to 0.4% from 3.9%.
In a Form 10-K filing, GM said its independent public accounting firm states that GM's recurring losses from operations, stockholders' deficit, and inability to generate sufficient cash flow to meet its obligations and sustain operations raise substantial doubt about its ability to continue as a going concern.
GM shares closed lower by 15% at $1.86.
Wells Fargo (WFC) shares tumbled after Moody's placed the company's long-term ratings of (senior debt at Aa3) under review for possible downgrade, based on the impact that future credit costs could have on the company's capital ratios; and the rating implications of possible systemic support, and how that support could affect various obligations ranging from deposits to non- cumulative preferred stock.
Moody's also changed its rating outlook on JPMorgan Chase (JPM) and subsidiaries to negative from stable, reflecting Moody's expectations that JPMorgan's results will continue to be saddled by sustained high provisions and credit costs for the coming four-to-six quarters, due to increasing financial strains for U.S. consumers and the global recession.
Also, Moody's placed long-term ratings of Bank of America (BAC) (senior debt at A1) under review for possible downgrade.
Dow Jones Indexes is watching Citi shares "closely" related to their inclusion in the DJIA after dipping below $1, according to news reports.
"Both BofA and Citi have been cut some slack as they reorganize with federal backing, though 'penny stocks' if sustained are at risk of being bounced from the major indices in favor of other firms," notes Action Economics.
Banc of America cut its target price on the shares of Alcoa (AA) to $3.00 per share from $6.00. BofA said while Alcoa should be able to bring its costs down, metal prices are expected to remain below breakeven over the near-term.
On a more positive note, Wal-Mart (WMT) posted a 5.1% gain in February same-store sales
In economic news Thursday, new orders for U.S. manufactured goods fell for the sixth consecutive month in January, by 1.9%. The drop was better than the consensus estimate of a 3.5% drop. Durable orders fell 4.5% (revised from 5.2%), while nondurable orders and shipments rose 0.5%, boosted by a 9.4% jump in petroleum that was price-driven. Shipments fell 1.7%, with durables down 4.0% (revised from 3.7%). Factory inventories fell 0.8% in January, raising the inventory/sales ratio slightly to 1.46 months from 1.44 in December. Unfilled orders fell for the fourth consecutive month, by 1.7%.
U.S. jobless claims were down 31,000 at 639,000 for the week ended Feb. 28, from 670,000 in the prior week (revised from 663,000). Continuing claims fell to 5,106,000 in the week ended Feb. 21, from a revised 5,120,000 (previously 5,112,000). The 4-week moving average rose 2,000, to 641,750 from 639,750.
"The data are a bit better than expected, though still at elevated levels, and will keep the focus on Friday's February payroll report, where consensus is for a 630,000 drop in nonfarm payrolls," says Action Economics.
U.S. nonfarm productivity growth was revised sharply lower to -0.4% in the fourth quarter, vs. the previously reported 3.2% and a 1.5% rate in the third quarter. Unit labor costs were revised sharply higher to a 5.7% rate of growth from 1.8% initially. Output growth was revised down to -8.7% from -5.5% previously. Compensation per hour was revised to 5.3% from 5.0%, while real compensation was revised to 15.9% from 15.6%.
The Bank of England cut its key rate 50 basis points to 0.5% and the European Central Bank cuts its key rate to 1.5% from 2.0% in efforts to revive their respective economies. The European Union's statistics office confirmed its earlier estimate that quarter-on-quarter gross domestic product in the euro zone shrank 1.5% in the fourth quarter after a 0.2% drop in the third.
Premier Wen Jiabao said China would ramp up deficit spending this year to hit its all-important 8% growth target but did not announce an increase in an already-huge two-year economic stimulus plan that markets had craved. In his annual work report on Thursday to the National People's Congress, the largely ceremonial parliament, Wen said the 2009 growth goal was realistic despite a deepening global financial crisis.
Wen said "demand continues to shrink on international markets; the trend toward global deflation is obvious; and trade protectionism is resurgent. The external economic environment has become more serious, and uncertainties have increased significantly." But he said China's prospects were as bright as ever.
Among other stocks in the news Thursday, Adobe Systems (ADBE) said it sees first-quarter revenue of $783 million-$786 million, and non-GAAP EPS of $0.44-$0.45. The company expects to achieve a first-quarter operating margin of 37.0%-37.5%. Adobe said its first quarter revenue target range was $800 million-$850 million, with non-GAAP EPS of $0.43-$0.47. The company cited weakness in its creative and knowledge worker businesses. UBS reportedly upgrades to buy from neutral.
Weight Watchers International (WTW) posted $0.56 (excluding items) vs. $0.50 fourth-quarter EPS on a slight revenue rise. The company said it sees 2009 EPS of $2.50-$2.75. Wall Street's view is for 2009 EPS of $2.62.
Greenbrier Cos. (GBX) said it in talks with General Electric's (GE) Electric Railcar Services Corp. concerning potential modifications to a long-term contract for GE's purchase of 11,900 newly built tank and covered hopper cars over an eight-year period. Greenbrier said GE has advised the company that GE desires to substantially reduce, delay or otherwise cancel railcar deliveries under the contract.