Stocks Finish Mixed
U.S. stocks closed mixed Wednesday in choppy trading, with the market getting a partial boost from bargain hunting following recent drops in prices.
Traders weighed more gloomy news about the economy, including a record-low reading for U.S. housing starts in January. The Federal Reserve cut its GDP forecast.
Meanwhile, President Obama unveiled a plan to help 9 million people rework their mortgages.
On Wednesday, the 30-stock Dow Jones industrial average finished higher by 3.03 points, or 0.04%, at 7,555.63. The broad S&P 500 index fell 0.75 points, or 0.10%, to 788.42. The tech-heavy Nasdaq composite index declined 2.69 points, or 0.18%, to 1,467.97.
On the New York Stock Exchange, 22 stocks were lower in price for every 9 that advanced. Nasdaq breadth was 17-10 negative. Trading was moderate.
Treasuries were lower. The dollar index was higher after an earlier slide. Gold futures climbed. Crude oil futures were mixed.
The FOMC, at its Jan. 27-28 meeting, estimated long-term economic growth at 2.5% to 2.7%t and an unemployment rate at 4.8% to 5%. Bloomberg said officials lowered their projections for economic growth this year, with most seeing a contraction of 0.5% to 1.3%. "All but a few saw the risks to growth as tilted to the downside," the minutes said. With financial markets stressed, "they saw a significant risk that the economic recovery could be delayed and initially quite weak."
Fed policy makers introduced a long-term U.S. inflation estimate, with most officials aiming to anchor public expectations at a 2% rate, according to Bloomberg.
President Barack Obama said his $75 billion housing plan seeks to make it easier for up to nine million people to rework or refinance their mortgages. Details of Obama's housing plan were released by the Treasury Dept. Wednesday morning. According to Action Economics, the plan will target an additional 3 million to 4 million at risk mortgages to help some 7 million to 9 million homeowners refinance. Importantly, the Treasury will share in some principal writedown costs. The Treasury Depat. will also increase its funding commitment to the GSEs, boosting Fannie Mae and Freddie Mac portfolios to $900 billion. It will continue to buy Fannie Mae and Freddie Mac mortgage-backed securities, and will buy up to $400 billion in stocks.
Former Fed Chairman Alan Greenspan said the U.S. may be doing too little to repair its financial system and promote an economic recovery. In a speech, Greenspan said "what we are currently going through is a once-in-a-century type of event. It will pass." Greenspan, who now heads his own Washington-based consulting company, warned in his speech that the positive impact of the stimulus package on the economy will peter out if the U.S. fails to fix its financial system.
Greenspan also told the Financial Times that seizing banks was a least worst option. "It may be necessary to temporarily nationalize some banks in order to facilitate a swift and orderly restructuring," he said.
The price tag for bailing out General Motors (GM) and Chrysler LLC jumped by another $14 billion Tuesday to $39 billion, with the two automakers saying they would need the additional aid from the federal government to remain solvent. The New York Times reported in return, the two companies also promised to make further drastic cuts to all parts of their operations, in the hope that they can eventually strike a balance between their bloated cost structures and a dismal market for new car sales.
GM said it would cut 47,000 more of its 244,000 workers worldwide; close five more plants in North America, leaving it with 33; and cut its lineup of brands in half, to just four: Chevrolet, Cadillac, GMC and Buick. The Pontiac brand will have a much smaller role, if any, in GM's future, and the company also said it would phase out its Saturn brand. GM also said it had made progress in discussions with the United Automobile Workers union and its bondholders to reduce its costs further. The cash crisis will require fast action by the administration's new cabinet-level Presidential Task Force on Autos, which is overseeing the reorganization of GM and Chrysler.
The firms that supply parts to U.S. automakers continue to suffer as well. On Wednesday, Goodyear Tire & Rubber (GT) posted a $1.37 fourth-quarter loss per share vs. $0.23 EPS on a 21% revenue decline. Goodyear plans to further reduce costs by about $700 million in 2009, including a further reduction in personnel by nearly 5,000 in addition to almost 4,000 reductions in the second half of 2008, and a salary freeze.
Meanwhile, Autoliv Inc. (ALV) suspended its quarterly dividend to further preserve cash as a precautionary measure in the current turmoil in the auto industry.
In economic news Wednesday, U.S. industrial production fell 1.8% in January, from a downwardly revised 2.4% drop in December (was -2.0%). November's -1.3% decline was revised up to -1.2%. That knocked capacity utilization down to 72.0% vs. 73.3% in December (revised from 73.6%). Manufacturing production declined 2.5% last month after better than 2% declines in November and December, with motor vehicle and parts output down a big 23.4%, reflecting the ongoing distress in that industry.
U.S. housing starts plunged 16.8% to a 466,000 unit annual pace in January from 560,000 in December and another record low. The pace was well below the 527,000 reading that markets expected. Permits fell 4.8% to 521,000 from 547,000 the month before. Single family starts were down 12.2%. Multi-family starts dropped 27.9%.
U.S. import prices fell 1.1% in January, less severe than the -1.5% reading markets had expected though it comes after falling -5.0% the month before. Export prices rebounded 0.5%, stronger than the -1.0% expected by markets though after a 2.2% drop in December. Import prices of petroleum dipped 2.4% in January after plunging 27.2% in December. Excluding petroleum, import prices fell 0.8%. Export prices of agricultural products rose 6.2%. Excluding agriculture, export prices were flat.
Traders were looking ahead to reports Thursday on weekly initial jobless claims, the January index of leading indicators, the producer price index for January, and the Philadelphia Fed index for February.
Among other stocks in the news Wednesday, Deere & Co. (DE) posted $0.48 vs. $0.83 first-quarter EPS on a 1.1% revenue decline. Wall Street was looking for current-quarter EPS of $0.63. Deere sees second-quarter company equipment sales down about 9%, and down about 8% for the fiscal year, both of which include negative currency-translation impact of about 6%. Deere said it is suspending its practice of providing s quarterly net income forecast in light of highly uncertain conditions in the global economy.
Agilent Technologies (A) posted $0.20 vs. $0.36 first-quarter non-GAAP EPS on a 16% revenue decline. In addition to a targeted operational restructuring announced in December, the company will immediately shut two small board-inspection businesses and begin a restructuring of its global infrastructure operations to reduce headcount by 600. Agilent currently sees second-quarter results in line with the first quarter.
Constellation Energy (CEG) posted a $7.75 fourth-quarter GAAP loss per share vs. $1.42 EPS on a 7.9% revenue drop. The company set 2009 EPS guidance of $2.90-$3.20, and 2010 guidance at $3.05-$3.45. Constellation cut its quarterly dividend to the equivalent of $0.96 per share annually, reduced from $1.91.
Goldman Sachs (GS) announced that Jon Winkelried, the firm's President and Co-Chief Operating Officer and a member of its Board of Directors, would be retiring effective March 31, 2009.