Major U.S. stock indexes closed lower Monday as an outbreak of swine flu gave investors an excuse to turn cautious and unload issues tied to travel and
commodities. Hotels and airlines were among the day's biggest losers, while biopharma companies rallied on hopes these firms might offer a remedy to the disease.
On Monday, the 30-stock Dow Jones industrial average finished lower by 51.29 points, or 0.64%, at 8,025.00. The broad S&P 500 index fell 8.72 points, or 1.01%, to 857.51. The tech-heavy Nasdaq composite index shed 14.88 points, or 0.88%, to 1,679.41. On the New York Stock Exchange, 21 stocks were lower in price for every 10 that advanced. Nasdaq breadth was 18-9 negative.
Treasuries were higher ahead of the two-day Federal Reserve policy meeting beginning Tuesday. The dollar index was higher. Gold futures were lower. Oil futures fell.
There were no significant economic reports schedule for release Monday. Tuesday brings reports on house prices and consumer confidence. On Wednesday, first-quarter gross domestic product is expected to show a 5.8% decline.
The Associated Press reports governments were racing to find and contain pockets of swine flu around the globe, seeking to stem both the threat of a pandemic and public panic. The U.S. declared the health emergency amid confusion about whether new numbers really mean ongoing infections -- or just that health officials had missed something simmering for weeks or months. But the move allows the government to ship roughly 12 million doses of flu-fighting medications from a federal stockpile to states in case they eventually need them. "We're preparing in an environment where we really don't know ultimately what the size or seriousness of this outbreak is going to be," U.S. Homeland Security Secretary Janet Napolitano said Sunday.
On Monday, a World Health Organization spokesman said the pandemic alert level could be raised to a 4 or 5 from phase 3 currently. The WHO also has begun work to find a vaccine. It has identified 40 cases in the U.S., 26 in Mexico, 6 in Canada and 1 in Spain currently.
In Mexico, the outbreak's epicenter, soldiers handed out 6 million face masks to help stop the spread of the novel virus that is suspected in up to 103 deaths. Most other countries are reporting only mild cases so far, with most of the sick already recovering.
The Mexican peso was off to 13.7204 per dollar after U.S. President Barack Obama's administration declared a public health emergency and released stockpiles of medicine because of a growing number of swine flu cases. Mexico requested the closure of bars, movie theaters and churches in the capital to fight swine flu. Foreign tourism brought $13.3 billion into the economy last year, making it the country's third-largest source of foreign currency, behind oil exports and remittances from nationals living abroad. Private consumption accounts for about 50% of total demand for goods and services in the economy.
Reuters reported that a 6.0 magnitude earthquake hit 19 miles south-southwest of Tixla, Mexico on Monday -- 150 miles from Mexico City. There were no immediate reports of deaths or damage in the capital. But buildings in the capital shook. The city and its surrounding area have a population of around 20 million. A civil protection official said there were no immediate reports of deaths or damages from the quake in Mexico City.
General Motors said it will continue to reduce its work force and dealer network and eliminate its Pontiac brand by the end of next year as the auto maker works furiously to survive GM is also starting an exchange offer for $27 billion of its unsecured public notes as part of its restructuring plan, saying a successful exchange offer would allow it to restructure out of bankruptcy court. The company said by the end of the year, it will employ 21,000 fewer hourly workers than it does now. The company is offering to exchange 225 common shares for each $1,000 principal amount of outstanding notes. The exchange will commence only if 90% of bondholders agree to the terms. Under the plan, if GM fails to get adequate participation, it would file for bankruptcy protection.
GM, which is surviving on federal loans, is racing to restructure by June 1 under close watch of the Obama administration. The U.S. Treasury will extend an additional $11.6 billion to GM, in addition to $15.4 billion in existing loans.
Chrysler LLC, racing against an April 30 deadline to cut labor costs or face bankruptcy, reached a tentative contract agreement with its biggest U.S. union and won ratification of a new accord with Canadian workers. Bloomberg News says members of the United Auto Workers must still vote on their proposed money-saving contract. Employees represented by the Canadian Auto Workers approved a contract that may save the automaker $197 million annually. The moves boost Chrysler's attempt to avoid a government- ordered bankruptcy. Union workers must accept less-generous contracts so Chrysler can form an alliance with Italy's Fiat SpA and qualify for more U.S. and Canadian aid.
The Financial Times reported that three investment groups submitted bids for AIG's (AIG) International Lease Finance Corp. Bids for the aircraft lessor were for less than $5 billion. People close to the situation said one consortium was led by Thomas H. Lee Partners and Carlyle Group, while Onex and Greenbriar Equity Group headlined a second group. The third bidder's identity could not be determined, according to the article.
Qualcomm (QCOM) and Broadcom (BRCM) entered into a settlement and multi-year patent agreement which will result in dismissal with prejudice of all litigation between the companies, including all patent infringement claims in the International Trade Commission and U.S. District Court in Santa Ana, as well as the withdrawal by Broadcom of its complaints to the European Commission and Korea Fair Trade Commission. Qualcomm will pay Broadcom $891 million over a four-year period. Qualcomm posted an $0.18 second-quarter loss per share vs. $0.47 EPS one year earlier on a 5.7% revenue decline and the effect of the settlement charge.
Traders weighed a fresh round of earnings reports Monday. Verizon Communications (VZ) posted $0.63 vs. $0.61 first-quarter non-GAAP EPS on 12% revenue rise.
Whirlpool Corp. (WHR) posted first-quarter EPS of $0.91, vs. $1.22, on a 23% sales drop (down 14% excluding forex). Wall Street was looking for an $0.18 loss. The company maintained its $3.00-$4.00 2009 EPS forecast.
Corning Inc. (GLW) posted $0.10 vs. $0.44 first-quarter non-GAAP EPS on a 39% sales decline. Wall Street was looking for EPS of $0.05. The company sees sequential volumes at its wholly owned business to be up more than 50%. It sees LCD TV units growing 18% this year vs. its original view of 9%. The company will consider taking further corporate-wide restructuring actions. It expects "significant" improvement in Q2 sales, gross margin, and earnings before special items.
Humana Inc. (HUM) posted $1.22 vs. $0.47 first-quarter EPS on an 11% revenue rise. The company noted that results were ahead of its previous $1.10-$1.20 guidance, driven primarily by solid operating performance in both of its business segments. Humana raisef its 2009 EPS projection to $6.10-$6.20 to reflect improved Government Segment operating performance partially offset by lower expected investment income and commercial membership.
In economic news Monday, the U.S. economy will continue to contract "for some time to come," said Lawrence Summers, director of the White House National Economic Council. Summers said the economy will pick up as manufacturers rebuild depleted inventories and consumers replace aging cars. "These imbalances can't continue forever," he said. "When they are repaired they will be a source of impetus for the economy." Summers said the Obama administration is "on a path toward containment and toward building a path toward expansion," he said, adding that "even sharp plans take time" to work, perhaps six months or more.
U.S. banks that received results of their federal stress tests last week were given three options if they need additional capital to withstand the recession. The reality is they may only have one. Getting federal aid or selling shares -- two of the choices offered to the 19 lenders being tested -- aren't practical politically or financially, according to analysts, including Jeff Davis, the research director at Howe Barnes Hoefer & Arnett Inc. in Chicago. Lawmakers have opposed adding more to the $700 billion that the government already committed and investors have balked at buying shares of financial firms after a two-year drop.
That leaves the third option presented by Treasury Secretary Timothy Geithner: changing the preferred stock held by the U.S. Troubled Asset Relief Program into common shares. Doing so would prop up capital under accounting rules and dilute the value of shareholdings for current investors.
Finance ministers at the IMF-World Bank meetings tried to work out details of the $1.1 trillion plan that President Barack Obama and his G-20 counterparts announced at their recent summit in London. There was much talk about how to come up with the fresh $500 billion infusion that the G-20 pledged to the IMF at the summit. More than $300 billion is already pledged by the U.S., the European Union, Japan, Canada, Switzerland and Norway. It remains unclear which countries will open their wallets wider -- or at all. To make up the shortage, the IMF agreed to sell bonds -- something it's never done in its 65 years -- to emerging economies such as China, Brazil and India.