U.S. stocks closed sharply lower Wednesday. Profit warnings from Intel (INTC) and Time Warner (TWX) gave investors reasons to sell into recent market gains, as did an ADP survey showing a 693,000 plunge in U.S. private sector payrolls in December.
Additional bad news on the jobs front is expected from Thursday's weekly initial jobless claims and Friday's December nonfarm payrolls data.
Sentiment was also hurt Wednesday by news that Alcoa (AA) announced layoffs and production cutbacks.
Also, the Congressional Budget Office said the federal budget deficit will hit $1.2 trillion for the 2009 budget year.
Meanwhile, the ABC/Washington Post Post Consumer Comfort index was flat, while the Mortgage bankers Assn. reported that mortgage applications fell in the past week.
Bonds were lower. The dollar index, which rallied the previous two sessions, fell. Gold futures were lower in volatile trading. Crude oil futures, and shares of energy companies, fell after weekly U.S. inventory data showed a rise in energy stockpiles.
On Wednesday, the 30-stock Dow Jones industrial average finished lower by 245.50 points, or 2.72%, at 8,769.70. The broader S&P 500 index shed 28.05 points, or 3.0%, to 906.65. The tech-heavy Nasdaq composite index fell 53.32 points, or 3.23%, to 1,599.06.
On the New York Stock Exchange, 25 stocks were lower in price for every six that advanced. The ratio on the Nasdaq was 20-7 negative.
ADP reported that its survey of U.S. payrolls showed a drop of 693,000 in December, much worse than the 475,000 drop expected by the consensus for Friday's payroll report from the Bureau of Labor Statistics. Although the ADP survey has often been wide of the mark, it still has some predictive value, according to S&P Economics, and suggests Friday's report may be worse than the disaster already expected.
The November ADP number was revised to show a drop of 476,000, compared with the BLS preliminary estimate of 586,000. Most of the December job loss was in the service sector (down 473,000), consistent with expectations of weak retail employment in the payroll report.
"The report is bad news for the market and the economy, suggesting conditions are worsening faster than we had expected," wrote S&P senior economist Beth Ann Bovino Wednesday.
The federal budget deficit will hit an unparalleled $1.2 trillion for the 2009 budget year, according to a Capitol Hill aide briefed on new Congressional Budget office figures. The $1.19 trillion 2009 figure shatters the previous record of $455 billion, set only last year. It also represents about 8% of the size of the economy, which is higher than the deficits of the 1980s. The 2009 budget year began last Oct. 1. The AP said the aide says the CBO also sees a $703 billion deficit for 2010. The dismal figures come a day after President-elect Barack Obama warned of "trillion-dollar deficits for years to come."
Treasury Secretary Henry Paulson said Fed purchases of GSE debt is reducing rates and may lure in new home buyers. Yet he sees government support for almost all new mortgages as unsustainable in the long-term, also suggesting that government backing for GSEs must ultimately be explicit or non-existent, not in between. Obama could temporarily guarantee GSE directly to help cut mortgage rates, he said, while permanent nationalization is sub-optimal. GSEs taking the form of a public-utility-like mortgage guarantor may resolve inherent conflicts as well, backing debt but with no portfolio of their own.
February West Texas Intermediate crude oil futures fell to $45.36 per barrel, down $3.22 on the day, following the EIA's weekly inventory data, which showed a 6.7 million barrel rise in crude-oil stocks. Wall Street had been expecting a 1.0 million barrel increase. Meanwhile, gasoline supplies, seen up 1.0 million barrels, actually rose 3.3 million barrels, while distillate stocks were up 1.8 million barrels, vs. expectations for a flat outcome.
Standard & Poor's said Wednesday that 288 of the approximately 7,000 publicly owned companies that report dividend information to the financial research and information provider decreased their dividend during the fourth quarter of 2008 -- a 444% increase from the 52 issues that decreased their dividend during the fourth quarter of 2007. Reported dividend increases fell 40.0% to 475 from the 792 reported during the fourth quarter of 2007. S&P said it was the worst quarter for dividends since it started keeping dividend records in 1956.
According to a Reuters report, Bank of America (BAC) has sold a portion of its holdings in China Construction Bank, generating proceeds of $2.83 billion, but still leaving BofA with a 16.6% stake in the company. The company had planned and then canceled a similar sale in December. On Tuesday, a report in the Wall Street Journal (citing an internal memo) said that BofA's CEO Ken Lewis expects fourth-quarter earnings to be below expectations. The memo reportedly also says Lewis and top executives will not receive a bonus for 2008.
Intel sees lower-than-expected fourth-quarter revenue of about $8.2 billion, down 20% sequentially and 23% year-over-year. The chipmaker cited further weakness in end demand and inventory reductions by customers in the global PC supply chain. Intel said preliminary estimate of fourth-quarter gross margin is at the bottom of the previous expectation of 55%, plus or minus a couple of points.
Time Warner said Wednesday the economic environment has proved somewhat more challenging than it previously expected. The media giant now anticipates that growth in 2008 adjusted operating income before depreciation and amortization will be around 1%. Time Warner also expects a non-cash impairment charge in the fourth quarter of about $25 billion related to goodwill and identifiable intangible assets at the cable, publishing, and AOL segments. Due to this impairment charge, the company expects an operating loss in 2008 as compared to operating income of $8.9 billion in 2007.
U.S. metals giant Alcoa said Wednesday it will implement further smelting reductions of more than 135,000 metric tons per year resulting in reduction of total primary aluminum output by more than 750,000 metric tons, or 18% of annualized output. Alumina production will also be reduced to a total of 1.5 million metric tons. Alcoa will reduce headcount by more than 13,500 employees, or 13% of its global workforce, by the end of 2009, with an additional 1,700 contractor positions eliminated. Alcoa has also instituted a global salary and hiring freeze.
Ethan Allen Interiors (ETH) said it plans to consolidate operations of its Eldred, Pa., upholstery manufacturing plant and several of its retail service centers. The company expects to take about $8 million-$9 million of pre-tax restructuring, impairment and other related charges in the second half of fiscal 2009.
Shares of Indian IT services company Satyam Computer Services (SAY) did not trade in the U.S. Wednesday; the shares lost nearly three-quarters of their value in overseas trading after the company said it received a letter from chairman B Ramalinga Raju tendering his resignation and detailing financial irregularities. The Financial Times reports that B Ramalinga Raju admitted wildly inflating the company's margins to paint a picture of good performance and retain his management position, in one of the worst scams to have hit India's outsourcing sector.
"How many more Madoff/Satyam/Enrons will come to light is the scary prospect as the casual investor is in danger of being lost due to lack of trust of anyone, and who can blame them," wrote Jay Collins of DT Trading in Chicago in a note Monday.
In earnings news Wednesday, Monsanto (MON) posted 98 cents vs. 45 cents first quarter EPS (ongoing) on a 29% sales rise. The company said greater demand in Latin America for its products propelled it to record-setting results. Monsanto raised its fiscal 2009 EPS guidance from a range of $4.20-$4.40 to $4.40-$4.50 on an ongoing basis.
Constellation Brands (STZ) posts 60 cents vs. 55 cents third quarter non-GAAP EPS as lower interest expense offset a 6% reported sales decline. The wine and spirits producer tightened its fiscal 2009 EPS guidance to a range of $1.68-$1.72 from its previous estimate of $1.68-$1.76.
Family Dollar Stores (FDO) posted 42 cents vs. 37 cents first quarter EPS on 2.1% higher same-store sales and 4.2% higher total sales. The discount retailer sees 48 cents-52 cents second quarter EPS on 3%-5% higher same-store sales; it sees $1.63-$1.81 fiscal 2009 EPS on 2%-4% higher same-store sales and 4%-6% higher total sales.