Equity indexes slumped Thursday as investors sought safer assets on concern the global economic rebound will stall
By Elizabeth Stanton
Dec. 17 (Bloomberg) -- U.S. stocks tumbled the most in three weeks after Citigroup Inc. (C) sold stock at a discount, FedEx Corp.'s (FDX) profit forecast trailed analyst estimates and jobless claims unexpectedly increased.
Citigroup, the last of the four largest U.S. banks to repay a taxpayer bailout, declined 7.3 percent. FedEx, the second- largest U.S. package-shipping company, fell 6.1 percent after saying its forecast reflects a "modest" economic recovery. Goldman Sachs Group Inc. (GS) and Morgan Stanley (MS) declined at least 2.5 percent after analyst Meredith Whitney lowered earnings estimates on concern clients are trading less.
The Standard & Poor's 500 Index slid 1.2 percent to 1,096.08 at 4:10 p.m. in New York. The Dow Jones Industrial Average dropped 132.86 points, or 1.3 percent, to 10,308.26. Both fell the most since Nov. 27. Stocks in Europe also declined after Standard & Poor's cut its credit rating for Greece.
"Improvement in earnings in 2010 is going to depend upon actual revenue gains, which means you have to have sustainable economic recovery," said Jason Pride, director of investment strategy at Glenmede in Philadelphia, which manages $18 billion. "Employment is the most important determinant of sustainability of an economic recovery."
U.S. stocks erased most of an early advance yesterday after the Federal Reserve repeated its pledge to keep interest rates "exceptionally low" for an "extended period," citing "a weak labor market, modest income growth, lower housing wealth, and tight credit." The S&P 500 closed at its highest level of the year on Dec. 14.
Jobless Claims Rise
Benchmark indexes opened lower today after initial jobless claims rose by 7,000 to 480,000 in the week ended Dec. 12, Labor Department figures showed. The average estimate of economists surveyed by Bloomberg was for a decline to 465,000. An increase in claims the previous week was the first in six weeks.
Stocks remained lower even after gauges of the economic outlook and manufacturing in the Philadelphia area rose more than forecast. The Conference Board's index of leading indicators climbed 0.9 percent in November, its eighth straight gain, compared with a median forecast of 0.7 percent. The Philadelphia Fed's general economic index climbed to 20.4 in December, the highest since April 2005.
Citigroup sank 7.3 percent to $3.20, the lowest closing price since Aug. 3. The shares are down 19 percent this week. The lender sold 5.4 billion shares at $3.15 apiece, less than the $3.25 the government paid when it acquired a one-third stake in September. The Treasury Department, which had planned to sell as much as $5 billion of its stake in conjunction with the offering, delayed the sale for at least 90 days.
Bank of America Corp. (BAC) and JPMorgan Chase & Co. (JPM), the two largest U.S. banks by assets, fell at least 2.6 percent each.
Investors demanded a bigger discount from Citigroup than Bank of America Corp. or Wells Fargo & Co. (WFC), which together raised more than $31 billion this month to exit the government's Troubled Asset Relief Program.
"This is an exhausting week of $30 billion worth of capital having to find its way into Citibank and Wells Fargo," said Kevin Rendino, who manages $10 billion in Plainsboro, New Jersey, at BlackRock Inc., the world's largest asset manager.
National Beef Inc. postponed its initial public offering, the seventh U.S. company to do so this quarter, after underwriters failed to drum up enough interest in the shares at $15 to $17 each, Bloomberg data show. Investors extracted price cuts from three private equity-backed IPOs this week.
FedEx lost 6.1 percent to $84.47, its steepest decline since March. Earnings for the three months ending in February will be in a range of 50 cents to 70 cents a share, the company said. Analysts forecast 84 cents, based on the average of estimates compiled by Bloomberg. Economists consider FedEx a bellwether because it moves goods ranging from industrial parts to apparel.
Goldman Sachs slid 2.5 percent and Morgan Stanley dropped 4 percent after Whitney, the analyst known for correctly predicting Citigroup's dividend cut last year, reduced earnings estimates for the companies through 2011, citing slower client trading activity in the current quarter.
Discover Financial Services (DFS) dropped 9.1 percent to $14.92, the biggest decline in the S&P 500. The credit-card lender that took $1.2 billion from the U.S. bank bailout fund said profit fell 16 percent in the fourth quarter as credit-card defaults increased.
The biggest stock market advance in seven decades is reducing the need for additional government stimulus measures, according to former Fed Chairman Alan Greenspan.
The S&P 500's 64 percent jump from March 9 through yesterday made Americans richer by restoring $5.4 trillion to U.S. equities and helped spur a 1.3 percent increase in retail sales last month, data compiled by Bloomberg and the Commerce Department show.
"The stimulus is only a third spent, and its order of magnitude is not large enough to compare with the strength and power of the remarkable global equity increase that's occurred since early March," Greenspan, 83, said in a telephone interview yesterday from Washington. "Capital gains have proved a far greater stimulus than one can attribute to the $787 billion program that has been only partially spent."
Raw-materials companies in the S&P 500 fell 2.3 percent as a group, the biggest drop among 10 industries, as an increase in the value of the U.S. currency pushed down prices of dollar- denominated commodities including aluminum, copper and gold.
Alcoa Inc. (AA), the biggest U.S. aluminum producer, slid 2.7 percent to $14.50. Barrick Gold Corp. (ABX), the world's largest gold producer, fell 3.8 percent to $38.39.
Allegheny Technologies Inc. (ATI) rose the most in the S&P 500, jumping 5.6 percent to $40.20. The specialty-metals producer said it will earn at least 20 cents a share in the fourth quarter. Analysts surveyed by Bloomberg had estimated profit of 3 cents on average.
Harley-Davidson Inc. (HOG) dropped 4.8 percent to $25.59. The biggest U.S. motorcycle maker was added to Goldman Sachs Group Inc.'s "conviction sell" list. The brokerage cited "near-term downside on retail sales."
To contact the reporter on this story: Elizabeth Stanton in New York at email@example.com