Stocks turned mixed Monday after Ford turned in better-than-expected sales results and announced layoffs.
The Dow Jones Industrial Average pared its losses after the noon report. All three indexes, including the S&P 500 index and Nasdaq made forays into positive territory, though the gains didn't seem to have a lot of sticking power in this jittery market.
Ford reported its sales were down 6.9 percent in Februaryfrom a year earlier, roughly half of the more than 14 percent decline many analysts had expected. The company, which got bumped out of the No. 2 spot for U.S. auto sales by Toyota last year, also said it planned to cut back second-quarter production by 10 percent and that it would eliminate a shift at four plants, resulting in 2,500 layoffs.
Ford sales were helped by a 36 percent increase in sales of Ford Focus as fuel-efficient small cars are increasingly appealing to younger buyers, Ford said. Overall, Ford car sales were down 9.3 percent, while truck sales fell 5.6 percent.
Sales reports are due out later from General Motors , the top U.S. auto maker by sales, and Chrysler. Many analysts are forecasting double-digit percentage losses.
Citigroup cut its rating on General Motors to "sell" from "hold."
Incentives in the U.S. auto industry jumped 17 percent in February from January, offering consumers hope that weak demand has resulted in some pretty good deals, industry-tracking service Edmunds.com said Monday.
"It's a car buyer's market," Edmunds.com analyst Jesse Toprak said, "and that will likely be true for months to come."
Earlier, a reading on manufacturing came in better than expected.
The Institute for Supply Managment reported its gauge of manufacturing fell to 48.3in February from 50.7 in January. Economists had expected a reading of 48, and some feared even worse after the Philadelphia and Empire State regional reports. Any reading below 50 indicates contraction in the sector, though to suggest contraction in the broader economy, the reading would have to be down near 41 or 42.
"The strength of exports is keeping manufacturing going," Ian Shepherdson, chief U.S. economist at High Frequency Economics, wrote in a note to clients, "but the intensifying weakness of domestic demand is causing increasing problems." Overall, he said, "the ISM is now in the no-man's land between weak growth and recession, but the problems elsewhere in the economic point more to the latter."
Construction spending, which plugs into GDP, dropped 1.7 percent in January, wider than December's 1.1 percent decline and the 0.7 percent economists had expected.
Futures had been pointing lower all morning, but got a little bump, which Art Cashin, director of floor operations at UBS, told CNBC that was likely due to a "mistaken rumor" that there was a Federal Reserve meeting today that may result in an emergency interest-rate cut. There is a subcommittee meeting, Cashin points out, but it's "not a very special meeting."
A Fed spokeswoman confirmed that the 11:30 a.m. meeting, to discuss discount rates for a regularly scheduled meeting, is not unusual. "This is a regularly scheduled board meeting,'' Fed spokeswoman Michelle Smith said. "There is nothing out of the ordinary."
A lot of analysts think a recession has already been priced into the market, and, if we get some good economic data in the few months, we could see some rallies in the market.
“But that doesn’t get us out of the woods,” David Joy, chief market strategist at RiverSource Investments, told CNBC. “We think we’ll see a recession in 2009,” Joy said. He suggests that growing inflation will cause the Fed to turn quickly and begin raising interest rates. “At that point, a resurgence of pessimism will occur and that’s what pushes us into recession,” Joy said.
Lincoln Anderson, chief investment officer at LP Financial, agrees that a recession is already priced into the market, but thinks that, with more Fed stimulus on the way, we’ll avoid recession. “We have weathered the worst of the housing slump,” Anderson told CNBC. His biggest concern is oil. “If oil prices keep going up, it’s going to slam the real economy and push inflation,” Anderson said. Likewise, if the dollar keeps sliding, that could also hurt inflation and curb foreign investment in the U.S., Anderson said.
"Indeed, if oil can hit record highs as recession fears accelerate, it tells me there is little the Fed can do about inflation without driving the world into recession," writes Joel Naroff of Naroff Economics. "Thus, look for a 50 basis point cut on March 18th."
Both Joy and Anderson agree that, right now, there are some bargains to be had in the technology and health-care sectors.
Boeing was the top decliner on the Dow after the company lost a $40 million U.S. Air Force contract to rival aircraft maker EADS and its U.S. partner, Northrop Grumman . The contract, to build military refueling planes, was one of the biggest Pentagon contracts in decades.
Energy stocks were among the few advancers after crude oil hit another high, topping out at $103.51 a barrel. Dow components ExxonMobil and Chevron were both up more than 1 percent.
Shares of Diebold surged after Dow component United Technologies on Sunday madeanunsolicited $2.64 billion bid for the ATM maker, after trying for two years to merge with the company.
United Technologies, the world's largest maker of elevators and air conditioners, said Diebold would make an "excellent fit" due to its "strong market position, U.S. footprint, and balance between product and service revenues."
Several firms cut their price targets and earnings outlooks for brokerage firms, including Bear Stearns , Goldman Sachs and Lehman Brothers .
In other analyst action, Piper Jaffray cut its rating on the Internet sector to "neutral" from "positive," saying that earnings estimates are at risk.
Bank of America and RBC cut their price targets on Apple , but kept their "buy" and "outperform" ratings, respectively. Bank of America cited lower sales estimates for the iPhone and iPod amid weak consumer spending.
Apple earned the distinction of "Most Admired Company in America," according to a survey by Fortune magazine. Rounding out the top three were Warren Buffet's Berkshire Hathaway and CNBC parent General Electric.
Buffett, speaking on CNBC television on Monday, said the U.S. economy is in recession and that "stocks are not cheap."
"I would say, by any common-sense definition, we are in a recession," Buffett said. "We haven't had two consecutive quarters of [negative] GDP growth, but I will tell you, on balance, most people's situations, certainly their net worth, has been heading south now, for a considerable period of time." He restated, however, his view that over the long-run the U.S. economy will do fine and that each generation will live better than the one before it.
As for stocks, Buffett told CNBC's Becky Quick that, while stocks are "not cheap" now, they're not extreme, either. He says he's waiting for when stocks become "very cheap."
Buffett also said he is taking off the table an offer to guarantee $800 billion of municipal bonds backed by troubled bond insurers MBIA, Ambac Financial Group and FGIC. (Read a blog of the CNBC interview with Buffet.)
Meanwhile, CNBC has learned that a group of banks planning a bailout for Ambac may be willing to leave the bond insurer with a single "triple-A" credit rating." In the past, the bank consortium had wanted two triple-A ratings.
Subprime-mortgage defaults and debts are the biggest risks threatening the U.S. economy, followed, at a long distance, by inflation, a poll by the National Association of Business Economistsshowed on Monday.
Major home builder Hovanian will report earnings after the bell. Builder stocks have taken a beating as the real estate market has slumped, but Hovanian shares are up more than 21 percent in 2008 as the entire sector has made a strong comeback.
MONDAY: February auto sales
TUESDAY: Ohio, Rhode Island, Texas and Vermont primaries
WEDNESDAY: Factory orders, ISM services index, Fed beige book, Pfizer and Intel analyst meetings
THURSDAY: Weekly jobless claims, Retailers' Feb. sales reports, ECB and BOE rate decisions, Disney shareholder meeting
FRIDAY: February jobs report
Send comments to Cindy.Perman@nbcuni.com.