Stocks nearly beat Merrill Lynch loss

When the stock market closed today, the folks at Merrill Lynch (MER, news, msgs), who had shocked the stock market with a huge loss today, had to be heaving a big sigh of relief.

Yes, the investment bank's shares were down 5.8% on the day to $63.22. And yes, it had company in Amazon.com (AMZN, news, msgs), which finished down nearly 12% to $88.73.

But things could have been so much worse. Down as much as 206 points in the late morning, the Dow Jones industrials recovered to loss of just 1 point to 13,675. The Standard & Poor's 500 Index finished down about 4 points to just under 1,516. It had been down as much as 30 points.

And the Nasdaq Composite Index? It had been down 78 points, or 2.8%, before recovering about two-thirds of the loss. It closed down 24 points to about 2,775.

• Video: A time for caution

What happened? Three things.

• First, a lot of investors have set up their computers so that when the market hits predetermined levels, they start buying. Twice, the Dow closed in on 13,480, and twice, it bounced back. On the second bounce, the short-sellers, who sell stocks when they expect shares to fall further, started to cover their positions by buying shares, and that pushed the market higher.

• Then, at around 2:30 p.m. ET, a rumor started circulating that the Federal Reserve might cut its discount rate -- the rate at which it lends money to banks on a short-term basis -- from 5.25%. The Fed, which declined to comment, actually will meet next week and is expected to cut rates then.

• Lastly, software giant Microsoft (MSFT, news, msgs) beat Google (GOOG, news, msgs) and will invest up to $240 million for a minority stake in the social-networking site Facebook.com. Microsoft was up 1.1% to $31.25 on the news in regular trading and an additional 19 cents to $31.44 in after-hours trading. The deal suggests Facebook is worth $15 billion. Google was flat at $675.82 and was down slightly to $672.80 in after-hours trading. (Microsoft is the publisher of MSN Money.)

Merrill Lynch does itself no favors

Merrill Lynch startled investors today by saying that the subprime-mortgage mess did much more damage than expected.

The brokerage took a $7.9 billion charge for the third quarter, nearly $3 billion more than it had warned investors to expect. Only a month ago, the company had said it would take a $5 billion write-down.

As a result, angry investors sold off the stock heavily. But late-day rally in financial stocks pulled the stock up nearly $2 from a low of $61.40. More than 50 million shares changed hands, making it among the most active stocks on the New York Stock Exchange.

Merrill Lynch said it lost $2.3 billion, or $2.85 per share, in the quarter. That was down from a profit of $2.2 billion, or $3.14 per share, a year ago -- and far bigger than the consensus estimate of a loss of 45 cents a share and the 50-cents-a-share loss the brokerage forecast a month ago.

• Video: Inside Merrill's loss

"We're very disappointed," Rose Grant, a money manager at Eastern Investment Advisors in Boston, told Bloomberg News. "I don't think (CEO) Stan O'Neal will step down, but you do have to look at top management and wonder why they didn't know the extent of this loss."

Including the write-downs, revenue at Merrill plunged 94% to $577 million, down from $9.83 billion last year.

• Get free, real-time stock quotes on MSN Money

Analysts had been expecting revenue of $3.25 billion.

"We expect market conditions for subprime mortgage-related assets to continue to be uncertain and we are working to resolve the remaining impact from our positions," O'Neal said in a press release.

It was the first loss for the bank since 2001.

After the Merrill announcement, the biggest casualty was investor sentiment. Many feel burned by big investment banks whose managers didn't understand their vulnerability to a collapse in the mortgage market. The stock is down nearly 36% from its peak in mid-January.

• Video: Is a recession unfolding?

So not only did investors sell Merrill Lynch, they also knocked financial stocks generally lower. The Amex Securities Broker/Dealer Index ($XBD.X) was off 0.8% to 228. The Select Sector SPDR-Financial exchange-traded fund (XLF, news, msgs) was down 0.8% to $32.93.

Bear Stearns (BSC, news, msgs) fell 2.3% to $113.54. Lehman Bros. (LEH, news, msgs) finished down 1.5% to $57.42. Countrywide Financial (CFC, news, msgs) was down 8.1% to $13.83.

Two exceptions: Goldman Sachs (GS, news, msgs), up 0.6% to $225.12, and JPMorgan Chase (JPM, news, msgs) up 0.7% to $46.27.

Merrill's write-down exceeded Citigroup's (C, news, msgs) $6.5 billion and increased to more than $30 billion the total third-quarter cost for bad loans and trading losses reported by the world's biggest securities firms and banks, Bloomberg reported.

Slumping credit markets have led to the dismissals of high-profile executives including UBS AG (UBS, news, msgs) CEO Peter Wuffli and Bear Stearns Co-President Warren Spector. The crisis also resulted in Lehman Bros., E Trade Financial (ETFC, news, msgs) and Citigroup losing more than 20% of their stock market values or more.

Energy prices -- New York close

	Wed.	Tues.	Chg.	Month chg.	YTD chg.
Crude oil (NYMEX) (per barrel)	$87.10	$85.27	$1.83	6.66%	42.67%
Heating oil (per gallon)	$2.3420	$2.2998	$0.0422	4.65%	46.57%
Natural gas (per million BTU)	$6.9720	$6.7610	$0.2110	1.48%	10.68%
Unleaded gasoline (per gallon)	$2.1475	$2.1089	$0.0386	3.83%	34.04%

Amgen profit falls

After the close, biotech giant Amgen (AMGN, news, msgs) reported sharply lower third-quarter profit on plunging sales of its most important anemia drugs, amid new insurance-coverage restrictions and safety concerns, and on restructuring charges.

But the company exceeded Wall Street's diminished expectations for the quarter.

Amgen earned $201 million, or 18 cents per share, down 81% from a profit of $1.1 billion, or 94 cents a share, a year earlier. This year's profits were hit by write-offs of nearly $1 billion stemming from an acquisition and restructuring costs. Revenue in the quarter was unchanged at $3.61 billion.

The stock, which had closed up 0.8% to $58.13 in regular trading, fell back 0.4% to $57.89 in after-hours trading. Since peaking in September 2005, the stock has fallen 33%.

Watch Thursday's new-home sales report

There was more bad news about the housing market today.

The National Association of Realtors reported that existing-home sales fell 8% in September to a seasonally adjusted annual rate of 5.04 million -- the lowest level since 1999.

Inventories of unsold homes rose to a 10.5-month supply, the highest supply level seen since 1999.

• Housing horror could hang around for years

The report was the first of two about home sales. Thursday, the Commerce Department reports on new-home sales. Briefing.com forecasts that the number will come in at an annual rate of 780,000, down from 795,000 in August and 1 million a year ago.

Even if the number comes in higher, new-home sales have been falling fast and hard. They were 1.28 million in 2005.

As important as the sales number will be the inventory number, measured in months' supply. It was 8.2 months in August.

Pulte Homes (PHM, news, msgs) offered a look at the market after today's close. The home builder, one of the nation's biggest, wrote down $1.2 billion for land inventory and other problems in reporting a loss of $789 million or $3.12 for the third quarter. A year ago, the company earned $191 million or 74 cents a share. Revenue fell 31% to $2.5 billion.

It closed on 7,468 homes in the quarter, down 28% from a year ago, with an average price of $322,000, down 4% from a year ago. It has a backlog of 12,042 homes.

New orders fell 37% to 4,572, helping shrink the pipeline of new business to $4.1 billion from $5.8 billion a year ago.

For the fourth quarter, Pulte sees operating profits ranging from break even to 10 cents a share. And the market is so uncertain, it wouldn't hazard any guidance for 2008.

Pulte finished up 1% to $14.99 today. The Philadelphia Housing Sector Index ($HGX.X) was up 1% to 156.

Boeing profit flies, but forecast sinks

Shares of Boeing (BA, news, msgs) fell today after the aircraft manufacturer lowered its revenue forecast for next year. Blaming a revised delivery schedule of its new 787 Dreamliner jets, Boeing said it expects sales between $67.5 billion and $68.5 billion, lower than a previous forecast of between $71 billion and $72 billion.

• Video: Reaction to Boeing's warning

Shares of Boeing ended the day down 0.7% at $94.26.

Boeing said earnings in the third quarter rose 59% to $1.1 billion, or $1.44 per share, up from $694 million, or 89 cents per share a year ago.

Analysts were looking for earnings of $1.24 per share.

Revenue also came in higher, up 12% to $16.5 billion, and ahead of the consensus estimate of $16 billion.

Amazon's great earnings actually disappoint

A 320% jump in earnings wasn't good enough for Amazon.com.

The company late Tuesday reported net income of $80 million, or 19 cents per share, a huge jump from the $19 million, or 5 cents per share, Amazon.com earned in the same period last year.

Analysts had been looking for earnings of 18 cents per share.

• Video: More on Amazon.com

Revenue jumped 41% to $3.26 billion, ahead of Wall Street's estimate of $3.14 billion.

Still, shares of the stock sank nearly 16% to $84.80 today before recouping some of that loss. Before its earnings announcement on Tuesday, the stock had closed above $100 for the first time since 2000.

"The stock is down because there was some speculation that Amazon would blow the quarter away, and it came in 1 cent above consensus," Robert Toomey, an analyst with E.K. Riley Advisors, told Reuters. "It certainly took a little bit of the sizzle out."

Sales of "Harry Potter and the Deathly Hallows," the last in the series, hurt Amazon.com's gross margins in the quarter because the company discounted the book.

The company forecast fourth-quarter operating earnings between $221 million and $291 million; analysts expect earnings of $265 million.

Broadcom profit plunges

Shares of chip maker Broadcom (BRCM, news, msgs) fell apart this afternoon after the company late Tuesday reported a huge decline in profit for the third quarter.

Broadcom said net income was $27.8 million, or 5 cents per share -- a 75% drop from the $110.2 million, or 19 cents per share, that it earned in the same quarter last year.

Excluding charges related to acquisitions, Broadcom said it earned 27 cents per share, in line with analysts' consensus estimate.

Revenue rose 5% to $950 million, thanks in part to strong sales in the Bluetooth, digital television and wireless markets.

"Looking forward, in the fourth quarter and in 2008 we will continue to invest aggressively in research and development of products for the very large cellular handset market, as well as new product offerings to address more of our existing customers' needs," Chief Executive Officer Scott McGregor said in a press release.

The company spent $352.3 million on research and development, up 29% from the $272.6 million Broadcom spent in the third quarter of 2006.

McGregor said the company doesn't expect to see sizable revenue from R&D until 2009, which had at least one analyst a little hesitant.

"R&D is not horrible in light of what they're doing on the top line, but investors were looking for some slowing down there," Ruben Roy, an analyst at Pacific Crest Securities, told Bloomberg News.

Broadcom's woes battered chip stocks generally. The Philadelphia Semiconductor Index ($SOX.X) was down 3.5% to 462 on the day. Intel (INTC, news, msgs) was down nearly 3% to $26.01.

Short hits from the markets -- 4 p.m. ET

	Wed.	Tues.	Chg.	Month chg.	YTD chg.
Treasurys
13-week Treasury bill	3.710%	3.860%	-0.150	0.27%	-24.05%
5-year Treasury note yield	3.968%	4.057%	-0.089	-6.17%	-15.59%
10-year Treasury note yield	4.331%	4.405%	-0.074	-5.42%	-8.05%
30-year Treasury bond yield	4.641%	4.692%	-0.051	-3.97%	-3.67%
Currencies
U.S. Dollar Index	77.53	77.53	0.00	-0.12%	-7.08%
British pound in dollars	$2.0509	$2.0509	0.0000	0.16%	4.66%
Dollar in British pounds	£0.4876	£0.4876	0.0000	-0.16%	-4.45%
Euro in dollars	1.4271	1.4265	0.0006	0.03%	8.12%
Dollar in euros	€ 0.7007	€ 0.7010	-0.0003	-0.03%	-7.51%
Dollar in yen	¥114.23	¥114.68	-0.45	-0.45%	-4.02%
Commodities
Gold	$765.60	$763.10	$2.50	2.08%	20.00%
Copper	$3.4525	$3.5135	-$0.061	-5.15%	20.25%
Silver	$13.5900	$13.6500	-$0.06	-2.37%	5.53%
Crude oil (NYMEX) (per barrel)	$87.10	$85.27	$1.83	6.66%	42.67%

Cost of California fires: $45 million daily

Hundreds of thousands of people have fled Southern California because of the out-of-control wildfires that have scorched 645 square miles of land and destroyed hundreds of homes and businesses.

The fires are costing the local economy $45 million each day, The Wall Street Journal reported, citing Moody's Economy.com.

San Diego will be hit the hardest, economists Marisa DiNatale and Ryan Sweet wrote; in the worst-case scenario, total property damage could climb as high as $42 billion, the paper reported.

"If it's this big and blowing with as much wind as it's got, it'll go all the way to the ocean before it stops," San Diego Fire Captain Kirk Humphries told The Associated Press. "We can save some stuff but we can't stop it."

By Charley Blaine and Elizabeth Strott