Dow Drops 245 as Profit Warnings Rattle Market
Stocks logged their worst loss in about a month Wednesday amid some dismal predictions on the jobs front and as profit warnings started to roll in.
The Dow Jones Industrial Average lost 245.40, or 2.7 percent, to close at 8769.70. The S&P 500 shed 3 percent, while the Nasdaq fell 3.2 percent.
"It's going to be ugly,"Tom Higgins, chief economist at Payden & Rygel, told CNBC. "We're certainly not through the thick of it ... I think you're going to see a horrible earnings season."
Alcoa was the biggest drag on the Dow, falling 10 percent, after the aluminum maker said it would slash more than 15,000 jobs, halve capital spending and sell four businesses as it reduces aluminum production. The cuts come less than a week before Alcoa — the traditional earnings season curtain-raiser — is scheduled to report its fourth-quarter results.
At the same time, both the ADP National Employment Report and a report from job-placement firm Challenger, Gray and Christmas indicated sharp declines in December payroll numbers, pointing to considerable weakness in corporate health.
The official December jobs report from the government comes out on Friday; economists expect to see more than half a million jobs vanish from payrolls.
One pundit on CNBC said that number could be more like 750,000, while ING went so far as to say that the U.S. could lose one million jobs per monthin the next few months.
Earnings season unofficially kicks off Monday with Alcoa and the profit warnings are already flooding in.
Intel was also a big drag on the Dow, falling 6.1 percent, after the chip giant cut its fourth-quarter revenue forecastto $8.2 billion to $8.7 billion. It had previously pegged the range at $8.7 billion to $9.3 billion.
That snapped a five-day rally in techs, sending the Nasdaq down 3.2 percent. Microsoft shed 6 percent, while Hewlett-Packard lost 3.7 percent and Apple fell 2.2 percent.
Media giant Time Warner also issued a profit warning, saying it would post a net loss for 2008. Its shares fell 6.3 percent.
Three were a couple of encouraging reports on the earnings front: Agriculture giant Monsanto reported its profit more than doubled, boosted by strong herbicide and soybean seed sales in the United States and Latin America. The company also raised its full-year outlook. Its shares jumped 18 percent.
Family Dollar Stores reported its profit shot up 14 percent, also raising its full-year forecast, as cash-strapped consumers flocked to the discount store — and spent more when they were there. Family Dollar shares gained 14 percent.
Retailers will be in focus this week as big chains report their December sales, which is expected to show one of the worst holiday seasons on record.
"I think we are going to see a whole new color of ugly," retail analyst Patricia Edwards of Storehouse Partners, told Reuters.
Wal-Mart , the star of the season, is expected to show a 2.8 percent increase in December same-store sales, while teen and children's retailers are expected to have done the worst with a 15-percent decline. Overall, retail sales are expected to have dropped 7.1 percent, according to Thomson Reuters.
Wal-Mart, which is working out its succession plan as CEO Lee Scott retires, today named the current head of it's Sam's Club division, Doug McMillon, as president and CEO of the chain's international division. He will assume the role after Mike Duke, who currently holds that post, takes over for Scott as CEO.
Investors are bracing for a new wave of store closings and bankruptcies in 2009. The International Council of Shopping Centers estimates that 73,000 stores will close in the first half, following 148,000 in all of 2008.
Meanwhile, prominent bank analyst Meredith Whitney warned that U.S. banks are going to have to raise capital againin 2009 and that a sharp increase in credit-rating downgrades on mortgage-related securities will lead to further stresses on their capital.
And Sanford Bernstein cut its 2009 earnings forecast for Morgan Stanley and Goldman Sachs , which finished down 7.6 percent and 4.8 percent, respectively.
Kenneth Lewis, Bank of America's chief executive, recommended that his board of directors not pay him a bonus for 2008, a tough year for the bank, according to press reports confirmed by a bank spokesman.
The bank, which is trying to raise cash to weather the financial storm, is selling a $2.83 billion chunk of its holding in China Construction Bank at a 12 percent discount, according to a Reuters report.
Oil stocks including ExxonMobil and Chevron skidded as crude oil settled at $42.63 a barrel after a report showed crude inventories ballooned by 6.7 million barrels last week.
Texas oil billionaire Boone Pickens predicted that oil prices will top $100 a barrelby the end of 2010 as the global economy recovers.
Still to Come:
WEDNESDAY: Earnings from Bed, Bath & Beyond after the bell; MacWorld (Jan. 4-8)
THURSDAY: ECB and BOE rate decisions; Chain-store sales; weekly jobless claims; consumer credit; Consumer Electronics Show begins (Jan. 8-11)
FRIDAY: Jobs report; wholesale trade; Earnings from KB Home
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