Financial Downgrades Depress Stocks
Stocks were lower at midday on Wall Street, led by financials, after brokers downgraded several big names in the sector, including American Express.
But the mood was upbeat on the trading floor, Bob Pisani reports, as many traders were jazzed up about the Giants snapping the Pats' winning streak and winning one of the most exciting Super Bowl games in years.
Stocks surged in Asia as the Lunar New Year holiday began and European markets finished mixed.
U.S. stocks are coming off of their best week in nearly five years last week. "After having had such a difficult market and seeing it recovering, it's time to contemplate whether all the problems have disappeared," said Andre Bakhos, president of Princeton Financial Group in Princeton, New Jersey, told Reuters.
The Dow Jones Industrial Average was down less than 1%, after a 3.9% gain from last week's rally. The Nasdaq and S&P 500 index also declined following last week's gains of 3% and 4.2%, respectively.
The Commerce Department reported that December U.S. factory orders rose 2.3%, the biggest gain since July, amid strong aircraft sales. Economists had expected the gauge to rise 2.6%. Orders for nondefense capital goods, which exclude aircraft and are considered a good measure of business spending, climbed 4.5%, the largest increase since March.
President Bush on Monday acknowledged that a weaker economy would lead to higher budget deficits as he unveiled a $3.1 trillion spending plan for fiscal 2009 that would nearly freeze domestic programs.
Giants fans weren't the only ones flying high today. Morgan Stanley upgraded its rating on the airline industry, citing an improvement in a key airline gauge, revenue per available seat mile (RASM), notably from Continental Airlines . Calyon went out on a wing to say that the time has come for mergers in the airline industry, starting with Deltaand Northwest, and then Continental and United.
Shares of American Express, Capital One and Discover skidded in morning trading after UBS downgraded the financial-services firms to "sell" from "neutral" amid concerns about a consumer pullback.
"Just because we get a couple of [interest-rate] cuts from the Federal Reserve, it doesn't mean that all of a sudden everything is better,'' Tim Smalls, head of U.S. stock
trading at brokerage firm Execution LLC in Greenwich, Conn., told Reuters. "If anybody in the market is looking for a quick fix, we're not going to get it.''
In other ratings action, Goldman Sachs downgraded shares of rival brokerage Morgan Stanley to "neutral" and removed the stock from its "buy" list. Wells Fargo was the biggest decliner on the S&P 500 after Stifel Nicolaus and Merrill Lynch slapped the stock with a "sell" rating. Merrill Lynch also downgraded Wachovia.
Google shares declined after the Internet titan offered to help Yahoo fend of Microsoft's $44.6 billion bid.
Google's chief executive Eric Schmidt called Yahoo's chief executive Jerry Yang to offer his company's help in any effort to thwart Microsoft's bid, according to a report posted Sunday on the Wall Street Journal Online. Neither company had any comment on the report.
Microsoft, meanwhile, told CNBC that it will wait for Yahoo's board to decide what is best for the company's future and that its offer is meant to create a very competitive business.
Microsoft's proposed acquisition of Yahoo would marry the world's biggest software maker with one of the leading Internet media companies, shaking up the market for online services such as email and advertising.
But Google fired back Sunday at Microsoft's $44.6 billion bid to acquire Yahoo, accusing the software giant of seeking to extend its computer software monopoly deeper into the Internet realm.
David Drummond, a Google senior vice president and its chief legal officer, said in a blog post that the combination of Microsoft and Yahoo could undermine the open competition that has fueled Web innovation.
Analysts warned the offer was still in very early stages and talk about a possible Google counter-attack may be unfounded.
"It's reactive tactics coming from inside Yahoo and Google," Aleksandra Bosnjak analyst at StrategyEye Digital Media, told "Worldwide Exchange." "What we see here are industry shocks. I would not really think about it seriously yet, because it's all very speculative," Bosnjak said.
On the earnings front, Archer Daniels Midland, a leading U.S. food processor and ethanol producer, reported its net income rose 7.3 percent to $473 million, or 73 cents a share, from the year-earlier period, as higher commodity prices helped boost revenue.
Wendy's said its fourth-quarter earnings more than quadrupled from a year-earlier loss from discontinued operations despite sluggish sales and higher commodity costs. The fast-food chain has been considering a possible sale for nearly a year.
Meanwhile, Intel shares fell despite a report in Barron's that said the chip maker will probably generate double-digit annual earnings growth over the next several years and extend its lead over Advanced Micro Devices.
--Reuters contributed to this report.