U.S. stocks closed solidly lower Thursday, as investors turned cautious after two straight winning sessions and ahead of Friday's November U.S. employment report, which is widely expected to be weak.
On Thursday, the Dow Jones industrial average finished lower by 215.45 points, or 2.51%, at at 8,376.24. The broad S&P 500 index fell 25.52 points, or 2.93%, to 845.23. The tech-heavy Nasdaq composite index shed 46.82 points, or 3.14%, to 1,445.56.
On the New York Stock Exchange, 23 shares were lower in price for every eight that advanced. The ratio on the Nasdaq was 20-8 negative.
"The stock market suffered a steep slide in late trading that likely reflects profit taking ahead of the jobs data [Friday] morning by those who bought Tuesday and Wednesday," says S&P technical analyst Chris Burba.
U.S. Treasury issues extended recent gains Thursday as rate cuts in Europe and elsewhere supported speculation of a reduction in the U.S. federal funds rate target, amid ongoing weakness in the global economy. Higher weekly initial jobless claims contributed to that sentiment and raised concerns that the November labor report, due for release tomorrow morning, will show a larger decline in nonfarm payroll jobs than the 300,000 expected by economists.
On Thursday, energy stocks were hit by a sizable drop in crude oil futures. The dollar index fell. Gold retreated.
Equities had held up relatively well for much of the session, notes S&P MarketScope, in spite of dismal retail sales repors for November, job cuts at DuPont (DD), AT&T (T) and certain other corporations, and a a 5.1% drop in October factory orders. But nervousness about the jobs report appeared to grip the market in the final hour of trading.
Meanwhile the Big Three U.S. auto makers -- General Motors Corp. (GM), Ford Motor Co. (F), and Chrysler LLC -- once again took their case before Congress for a financial bailout.
European markets shed earlier gains to finish with slight losses with major indexes losing 0.03% in London, 0.17% in Paris, and 0.07% in Frankfurt. Asian markets closed mixed, with Tokyo stocks down 1.00%, Hong Kong lower by 0.58%, and Shanghai higher by 1.84%.
The European Central Bank cut its benchmark refi rate by 75 basis points to 2.50%. The cut was larger than the Bloomberg consensus of 50 basis points and the largest the ECB has ever delivered.
"We see the refi rate going down to at least 1.5% in ther first half of next year," says Action Economics.
The Bank of England cut its benchmark repo rate by 100 basis points Thursday, to 2.00%, in line with market expectations. The central bank said in statement accompanying the rate announcement that liquidity conditions remain extremely difficult, despite moves to boost bank capital and ease funding, and noted that further depreciation is Sterling should have moderate impact on domestic growth slowdown.
Also Thursday, Sweden's central bank cut interest rates by 175 basis points, while New Zealand's central bank eased by 150 basis points.
French president Nicolas Sarkozy announced €26 billion of stimulus measures. The aid totals 1.3% of GDP and will lift the French deficit-to-GDP ratio to 3.9% next year, from a projected 3.1% and clearly above the 3% limit laid down in the Maastricht Treaty. The government initially announced a stimulus package worth €20 billion, but there had been reports that this was upped in the light of increased economic pressures. The measures are expected to add 0.6% points to growth next year, according to government estimates and include increased investment spending by state owned companies and additional funding to local governments. The government also pledged to quicken the reimbursement of a sales tax, tax credits on research spoending and corporate profit levies.
In U.S. economic news, U.S. factory orders dropped 5.1% in October, from a revised 3.1% decline in September (-2.5% initially). The entire report was weak. Durable good orders were revised down to -6.9% from -6.2% previously. Orders excluding transportation declined 4.3%. Nondefense capital goods orders excluding aircraft were down 5.0%. Shipments fell 3.2% and inventories slid 0.6%. The inventory-shipment ratio rose to 1.33 from 1.29.
Weekly initial jobless claims fell 21,000 to 509,000 in the week ended Nov. 29 from a revised 530,000 the week before (from 529,000 previously). The four-week moving average continued to climb, however, rising to 524,500 from 518,250, a third straight week above the 500,000 mark. Continuing claims rose 89,000 to 4,087,000 in the week ended Nov. 22, the highest level since December 25, 1982.
"Despite the drop in initial claims last week, the levels remain very ugly and in recessionary territory," says Action Economics.
The Monster Employment Index fell seven points in November, as further economic uncertainty and workforce reductions continued to weigh on U.S. online recruitment activity. Year-over-year, the Index is down 22%, with U.S. online job availability at its lowest level since 2004.
Federal Reserve Board Chairman Ben Bernanke reiterated the U.S. could buy securities to try to drive down mortgage rates, noting mortgages could be bought in "bulk," in his prepared remarks on housing, mortgage markets and foreclosures.
Chicago Federal Reserve Bank President Charles Evans said the economy is contracting markedly and it's hard to judge just how long and deep the current recession will be amid high uncertainty and risks skewed to the downside. He sees the recent drop in consumer spending similar to 1990-92 episodes and sees growth remaining sluggish in 2009 before rebounding in 2010-11. Evans said the Fed must be vigilant in monitoring growth risks after a pronounced slump since late October, given weak labor, business investment, industrial output and consumer spending.
In corporate news Thursday, Bloomberg reports that General Motors and Chrysler LLC executives are considering accepting a pre-arranged bankruptcy as the last-resort price of getting a multibillion-dollar government bailout. The newswire, citing a person it claims is familiar with the internal discussions, reports that staff for three members of Congress have asked restructuring experts if a pre-arranged bankruptcy -- negotiated with workers, creditors and lenders -- could be used to reorganize the industry without liquidation. Many solutions to the automakers' financial problems are on the table in discussions in Washington and around the country among company officials, lenders, union officials and other interested parties. Negotiations are splintered among small groups, making it unlikely a proposed solution such as bankruptcy would emerge until next week at the earliest, the newswire said.
"[W]e believe the case is being made that risking the failure of automakers in the very short term would be more costly than the price of initial support. Still, we think Congress will want its pound of flesh in the form of concessions from UAW and other stakeholders," wrote S&P equity analyst Efraim Levy in a note Thursday. "Ultimately, we expect initial funding to be approved, with further funding conditioned on achieving clear financial metrics."
AT&T said it would cut about 12,000 jobs, about 4% of the company's total workforce, citing economic pressures, a changing business mix, and a more streamlined organizational structure. The company will take a fourth-quarter charge of about $600 million to pay severance to affected employees. It also plans to reduce 2009 capital expenditures from the 2008 level.
Retailers were in the spotlight Thursday, with the International Council of Shopping Centers, Inc. (ICSC) reporting that November U.S. chain store sales fell by a record 2.7% on a year-over-year same-store basis. Key industry players bore this out. Target (TGT) reported a net retail sales decline of 6.1% for November, with a comparable-store sales decline of 10.4%. Target said results were unfavorably impacted by the loss of seven post-Thanksgiving holiday shopping days compared to November 2007.
Costco Wholesale (COST) posted 5% lower November same-store sales and 3% lower total sales.
Macy's (M) posts 13% lower November same-store sales and 14% lower net sales. The company reiterated its fourth-quarter same-store sales guidance of down 1%-6%.
But not all the news from the sector was bad. Wal-Mart (WMT) reported 3.4% higher total U.S. same-store sales without fuel, 3.0% higher sales with fuel, and 1.6% higher total company sales. The company motes sales for Walmart U.S. during the November four-week period exceeded expectations.
Merck & Co. (MRK) reaffirmed guidance for 2008 non-GAAP EPS of $3.28-$3.32, excluding certain items, and its guidance for GAAP EPS of $3.45-$3.55. However, the drugmaker expects 2009 top-line growth to be offset by the effects of a volatile global economy, fluctuations in forex markets, and continued challenges for certain key products. Merck sees 2009 non-GAAP EPS of $3.15-$3.30, excluding certain items, and GAAP EPS of $2.95-$3.17.
In other U.S. markets Thursday, the 10-year Treasury note climbed 33/32 to 110-18/32 for a yield of 2.54%. The 30-year bond rallied 61/32 to 127-22/32 for a yield of 3.07%.
The dollar index was lower at 86.30.
West Texas Intermediate crude oil for January delivery plunged $3.12 to $43.67 per barrel, the lowest close since January 2005, as the worsening global recession lowered the fuel consumption outlook. Following the Merrill Lynch energy conference, Merrill energy analyst Erik Mielke said there were "no bulls on the near-term outlook for oil and chemical product demand and margins."
February gold futures were lower at $776.90.
Among Thursday's other stocks in the news, Nokia Corp. (NOK) announced that Research in Motion (RIMM) has renewed a multi-year patent license agreement. The agreement covers worldwide use of standards and essential patents for GSM, WCDMA, and CDMA2000 technologies. Financial terms of the deal consist of an up-front payment and on-going royalties payable to Nokia. Separately, Nokia estimates that fourth-quarter 2008 industry mobile device volumes will be lower than previous estimate of approximately 330 million units, and it expects 2009 industry mobile device volumes to decline 5% or more from 2008 levels.
Adobe Systems (ADBE) says it believes it will achieve fourth-quarter revenue of $912 million-$915 million, GAAP EPS of 45 cents-46 cents, and non-GAAP EPS of 59 cents-60 cents.Wall Street was looking for 51 cents. Adobe says the global economic crisis significantly impacted revenues. The company also announced a restructuring plan that will reduce headcount by about 600 full-time positions globally, and will result in expected pre-tax charges totaling $44 million-$50 million (including $28 million-$30 million recorded in the fourth quarter). It sees first-quarter revenue of $800 million-$850 million. Baird downgraded the shares to neutral from outperform.
Cirrus Logic (CRUS) sees third-quarter revenue of $42 million-$45 million, down 8%-14% from a year ago.
Jo-Ann Stores (JAS) posts third-quarter EPS of 40 cents (including a gain), vs. 32 cents one year earlier, on a 1.5% same-store sales drop and flat total sales. The company sees fiscal 2009 same-store sales approximately flat vs. its previously announced range of up 2.0%-3.5%; it cut its 95 cents-$1.05 EPS guidance to 75 cents-85 cents.
Aeropostale (ARO) posted third-quarter EPS of 63 cents, vs. 48 cents one year earlier, on a 7% same-store sales rise and a 17% total sales rise. The company sees fourth-quarter EPS of 84 cents-90 cents, vs. 93 cents (excluding items) last year. Aeropostale reported 5% lower November same-store sales and a 4.5% total sales rise. S&P lowered its EPS estimate and reiterated its hold opinion.
Worthington Industries (WOR) says end-market weakness and the speed and severity of the recent decline in steel pricing has left it with inventory in excess of reduced demand while market values for that inventory have plummeted. As a result, it will be writing down the value of its inventory by about $100 million (pre-tax) as of the end of its fiscal second quarter ended November.