U.S. Stocks Retreat as Economy Worsens; Financials, GM Decline
By Jeff Kearns
Dec. 27 (Bloomberg) -- U.S. stocks fell, sending the Dow Jones Industrial Average to a fourth straight weekly retreat, after profit outlooks weakened, home prices plunged and the government confirmed that the economy shrank the most since 2001.
MBIA Inc. and Discover Financial Services slumped more than 10 percent, driving financial institutions to the biggest retreat in the Standard & Poor’s 500 Index, following evidence the yearlong recession is deepening. General Motors Corp. fell 18 percent, despite an end-of-week rebound, as its debt was cut deeper into junk. Textron Inc., the maker of Bell helicopters and Cessna aircraft, lost 15 percent after saying profit this quarter will trail forecasts.
“The recession is going to be longer and more severe than most people anticipate, and I don’t see a recovery in the stock market anytime soon,” said Mark MacQueen, who helps oversee $7 billion as co-founder of Sage Advisory Services Ltd. in Austin, Texas. “It looks like 2009 is going to be a difficult year.”
The S&P 500 declined 1.7 percent to 872.80 this week. The Dow slipped 63.56 points, or 0.7 percent, to 8,515.55. The Russell 2000 Index of small companies fell 2 percent to 476.77.
Fewer than 4.3 billion shares traded in the U.S. yesterday, or 58 percent less than the three-month average. Only 3.64 billion shares changed hands on Dec. 24, the least since Dec. 26, 2003, as trading ended three hours early before Christmas.
At Least 1968
The S&P 500 extended its 2008 slide to 41 percent. The National Association of Realtors said the median resale price of single-family houses dropped 13 percent last month, the most since records began in 1968 and likely the largest decline since the 1930s. The Commerce Department said the economy contracted by 0.5 percent in the third quarter as consumer spending fell the most in almost three decades. Initial jobless claims rose to 586,000, the most since November 1982.
Monsanto Co. lost 5.5 percent to $67.72 after Goldman Sachs Group Inc. said the recession will hurt profit at the world’s largest producer of seeds. Walgreen Co., the second-biggest U.S. drugstore chain, sank 8.7 percent to $23.82 after posting the slowest sales growth in at least 18 years.
“The market has accepted the fact that the recession is getting worse and we’ll get a large hit to fourth-quarter GDP,” said Michael Strauss, who helps manage $40 billion at Commonfund in Wilton, Connecticut. “We’re expecting job deterioration to continue because of what the economy is doing.”
78% Retreat
The retreat in the S&P 500 this year caused losses at all but six of the 1,601 U.S. mutual funds that invest in stocks and have more than $250 million in assets, according to data compiled by Bloomberg. For 242 funds, the slump was at least 50 percent.
MBIA slipped 17 percent to a five-week low of $4.19. The bond insurer, stripped of its AAA credit rating after straying from backing municipal debt into guaranteeing securities backed by subprime mortgages, has lost 78 percent this year.
Discover, the fourth-largest credit-card network, slid 10 percent to $8.37, extending its 2008 loss to 45 percent. The S&P 500 Financials Index retreated 4.1 percent and has fallen 59 percent decline this year, the most in its 18-year history.
GM, the automaker poised to get at least $9.4 billion in U.S. aid, slid 18 percent to $3.66 for the week. The shares, down 85 percent this year for the worst return among 30 companies in the Dow average, pared their decline yesterday after the Federal Reserve approved lender GMAC LLC’s bid to become a bank holding company. GMAC provides financing to GM dealers.
Exit From Finance
Ford, the second-largest U.S. automaker behind GM, lost 22 percent to $2.29.
Textron slumped 15 percent to $12.91 after saying that profit this quarter will be hurt by losses at Textron Financial Corp. and that it plans to exit most of its finance businesses. That division accounted for 6.6 percent of revenue last year and 50 percent of assets.
The S&P 500 Retailing Index lost 4.3 percent. Discounts of 70 percent or more by Macy’s Inc., AnnTaylor Stores Inc. and other merchants failed to prevent a spending drop of as much as 4 percent during the final two months of the year, according to a SpendingPulse report.
The SpendingPulse data follow forecasts of falling revenue from industry groups. Sales at stores open at least a year may drop as much as 2 percent in November and December, the International Council of Shopping Centers said on Dec. 23, the worst drop since at least 1969.
“We continue to see concern on how the consumer will behave going into 2009,” said Walter “Bucky” Hellwig, who helps oversee $30 billion at Morgan Asset Management in Birmingham, Alabama. “With rising unemployment the question is whether the consumer will retrench and go into a shell, and what that portends for economic growth.”