Dow falls 121 as fear slams financial stocks

There was some good news that should have made investors happy today.

Crude oil was lower, down 66 cents to $93.43 a barrel. Gold fell about 3.4% to $787.30 an ounce. The price of copper fell more than 6.5% to $3.081 a pound. The U.S. dollar was higher against the euro, the British pound, the yen and the Canadian dollar.

But the fear of the unknown in financial stocks ultimately sent the stock market lower today.

The Dow Jones industrials fell 121 points, or 0.9%, to 13,110. The Nasdaq Composite Index was down almost 26 points, or 1%, to 2,619. And the Standard & Poor's 500 Index, which has a bias toward financial stocks, slumped 19 points, or 1.3%, to 1,451.

It was the market's third loss in four sessions this week and sixth of the last seven. Things would be much worse, were it not for Tuesday's big rally that saw the Dow jump 320 points and the Nasdaq soar nearly 90 points.

The mood didn't improve in after-hours trading. Shares of coffee chain Starbucks (SBUX, news, msgs) were slammed on a weak forecast for 2008 and a report that it saw the first decline in average visits ever.

"Starbucks is saying what the rest of the U.S. is saying, -- that the consumer is getting hit," James Walsh of Coldstream Capital Management in Bellevue, Wa., told Bloomberg News. "They're not immune."

There wasn't a lot of hard news that slammed financial stocks today -- just the fear that no one knows how big the mortgage and credit problems are for big banks and investment houses. Worse, no one knows how long it will take to fix the problems.

The Wall Street Journal said today that analysts believe UBS AG (UBS, news, msgs), the Swiss financial-services company, may write off up to $7 billion. UBS fell 3% to $47.75 in New York.

At the same time, a number of hedge funds were expecting investors to redeem their stakes, forcing them to sell more stocks.

The one bit of hard news: British bank Barclays (BCS, news, msgs) announced a $2.7 billion write-down, a far-smaller amount than expected. The stock, however, fell 2% in New York to $43.

But Wells Fargo (WFC, news, msgs) CEO John Stumpf put the market into a terrible mood when he said the housing slowdown was the worst since the Depression.

Wells Fargo's profit in the third quarter grew at the slowest pace since the second quarter of 2002 after losses from home-equity and consumer loans jumped. Stumpf told the Merrill Lynch financial services conference in New York today that the bank's home-equity-loan losses are likely to increase in the fourth quarter and remain "elevated" through 2008.

"It's hard to say what inning we are in," he said of the declining housing market. "I don't think we are in the ninth inning. If we are, it's going to be an extra-inning game."

Wells Fargo shares were down 3.9% to $31.97.

American International Group (AIG, news, msgs) was the Dow loser, down 4.2% to $56.95, followed by Citigroup (C, news, msgs), down 4.1% to $34.58, and JPMorgan Chase (JPM, news, msgs), down 3.6% to $43.53.

Six of the 10 biggest losers in the S&P 500 this afternoon were financial stocks. The biggest loser: Fannie Mae (FNM, news, msgs), down 10% to $43.04 on continued worries about its financial health. The nation's biggest provider of mortgage capital said last week that it had lost $1.4 billion in the third quarter after writing down the value of derivative contracts by $2.2 billion and taking a $1.2 billion charge for credit losses. And it sees a weak national housing market well into 2008.

Right behind was Countrywide Financial (CFC, news, msgs), down 8.7% to $12.21.

Not even Merrill Lynch's (MER, news, msgs) hire of John Thain to replace Stan O'Neal as CEO could help. Merrill shares, up 1.8% Wednesday, were down 1.2% to $57.30 today.

Twenty-two of the 30 Dow stocks were lower, along with 391 S&P 500 stocks and 60 Nasdaq-100 Index ($NDX.X) stocks.

The Dow leader was Walt Disney (DIS, news, msgs), up 1.7% to $32.40. Advanced Micro Devices (AMD, news, msgs) was the S&P 500 leader, up 3.4% to $12.70, on a day when most chip stocks were lower.

Energy prices -- New York close

	Thur.	Wed.	Chg.	Month chg.	YTD chg.
Crude oil (NYMEX) (per barrel)	$93.43	$94.09	-$0.66	-1.16%	53.04%
Heating oil (per gallon)	$2.5587	$2.5734	-$0.0147	2.03%	60.13%
Natural gas (per million BTU)	$7.7000	$7.8350	-$0.1350	-7.56%	22.24%
Unleaded gasoline (per gallon)	$2.3362	$2.3704	-$0.0342	-0.16%	45.82%

Weak earnings belt Starbucks shares

After today's close, Starbucks' shares were down nearly 8% to $22.22 despite a 35% rise in fiscal-fourth-quarter earnings.

In regular trading, the stock was off 0.6% to $24.10.

The stock was pummeled when the coffee shop chain said that weak consumer spending will knock 2008 earnings below many Wall Street estimates. As a result, the chain will open fewer stores in 2008 than originally projected.

The company said that same-store sales -- sales at store open at least a year -- rose 4% during the quarter, helped by a July price increase. The picture was a bit more complicated. There was a 5% increase in the average sale offset by a 1% decline in the number of transactions, which most Starbucks watchers define as visits.

The company was hit by stronger-than-expected economic headwinds, Chief Executive Officer Jim Donald told Bloomberg. "The consumer is being faced with rising costs in every sector of their lives,", he said, and Starbucks is being affected.

Starbucks earned $158.5 million, or 21 cents per share, up from $117.3 million, or 15 cents per share, in its year-ago quarter. The earnings met the average Wall Street estimate of 21 cents per share, Reuters said. But the company said higher dairy costs continue to squeeze profits.

Revenue was up 22% to $2.44 billion, a little above the Street estimate of $2.42 billion.

For fiscal 2008, Starbucks said it would open 2,500 stores, down from its previous target of 2,600. In addition, the Seattle company said it expected 2008 same-store sales to rise between 3% and 5%. That's down from the company's long-term goal of 3%-to-7% same-store sales growth.

Earnings for the year are expected to be between $1.02 and $1.05 per share. Analysts were expecting earnings of $1.05 per share, Reuters said.

Starbucks shares have been a huge disappointment in the last year, falling more than 40% from their all-time high of $39.43 on Nov. 16, 2006.

In an effort to boost sales, the company is going to launch a TV advertising campaign.

The good news from a $2.7 billion write-down

The good news about Barclays' $2.7 billion write-down for the third quarter was that it wasn't nearly as large as predicted. Rumors in London had suggested it would be closer to $10 billion. The rumor had knocked the stock down 3.5% on Friday, for example.

"We cannot categorically state that this is the end of the write-downs, but this gives us confidence that we should be materially through the problems," Collins Stewart analyst Alex Potter said to CNNMoney.com.

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

Barclays' announcement came two weeks early; the bank had scheduled an update for Nov. 27.

Banks and financial-services companies have announced more than $40 billion in write-downs so far this year, according to Bloomberg News.

JC Penney warns

JC Penney (JCP, news, msgs) sent holiday jitters throughout the retail sector today, and the stock was down more than 5.1% to $44.33 on the day.

The department-store chain said this morning that third-quarter earnings fell to $261 million, or $1.17 per share, down from $287 million, or $1.26 per share a year ago. Sales fell 1.1% to $4.73 billion; the company blamed unseasonably warm weather and softer consumer demand.

Excluding a tax benefit, JC Penney earned $1.03 per share, beating Wall Street's estimate of $1.02 per share.

But shares fell after the company warned of future troubles.

• Video: A look at Chinese-made toys

JC Penney said full-year earnings would fall to between $4.63 and $4.78 per share, down from a previous forecast of $5.50 per share.

A weak housing market, mortgage and credit market worries and rising fuel costs is hurting consumers and retailers, the company said.

The Standard & Poor's Retail Index ($RLX.X) was down 1.6% to 418 this afternoon.

• Tell us: What are your money goals for 2008?

The National Retail Federation is predicting that holiday sales -- which it defines as sales in November and December -- will rise only 4% to $474.5 billion, below the 10-year average of a 4.8% increase.

Higher energy prices hit CPI

Energy prices jumped 1.4% in October, the biggest monthly increase since May, when energy prices soared 5.4%.

The Consumer Price Index rose 0.3% in October, the Labor Department reported this morning, because of rising energy and food prices. The CPI number was in line with economists' expectations.

Gasoline prices rose 1.4% last month, and food costs rose 0.3%.

Excluding food and energy prices, the core CPI rose 0.2% last month, also in line with the consensus estimate.

The CPI and core CPI rose 0.3% and 0.2%, respectively, in September.

• Talk back: Do you think the Fed is spineless?

Although crude is up more than 53% so far this year, it fell after the Energy Department reported a rise in U.S. crude inventories.

Inventories rose by 2.8 million barrels last week; analysts had been expecting a decline of between 300,000 and 700,000 barrels.

Applied Materials' forecast falls short

Chip-equipment maker Applied Materials (AMAT, news, msgs) late Wednesday said fiscal-fourth-quarter profit fell 6% to $421.8 million, or 30 cents per share, from $449 million, or 30 cents per share, in the same period last year.

The company also warned that fiscal-first-quarter revenue would fall between 13% and 18% from the fourth quarter. "We see the first part of fiscal 2008 as challenging," CEO Mike Splinter said in a press release, citing lower spending for dynamic random access memory (DRAM), which is used in personal computers.

Shares rose today, however, with the stock up 6 cents at $18.87.

Merger speculation pushes Delta shares higher

Despite a high-level denial from Delta, Wall Street is speculating that a deal is in Delta Air Lines' (DAL, news, msgs) future. The stock rose 1.6% to $19.84 after jumping 3.5% Wednesday on talk that the airline could partner with UAL's (UAUA, news, msgs) United Airlines.

UAL shares were down 2.1% to $43.26 today.

Delta Chief Executive Officer Richard Anderson said in a statement that "there have been no talks with United regarding any type of consolidation transaction and there are no such ongoing discussions."

• Video: Slow and steady investing

Still, Delta said it has formed a special board to evaluate strategic options, and Anderson did not dismiss the idea of consolidation.

A merger was proposed by hedge fund Pardus Capital Management, which owns 7 million shares, or about 2.6%, of Delta and 5.6 million shares, or 4.8%, of UAL stock.

Pasta crisis in Italy

What would Italy do without pasta?

Residents of Parma, Italy, are worried about the rising price of pasta as wheat prices have soared 60% in the past year, Fortune magazine reported.

The price of pasta has jumped 20% in some pasta brands, causing uproar for pasta lovers, the magazine wrote.

Guido Barilla, chairman of the $3.4 billion company bearing his name, said that the problem stems from using agriculture for energy. "It's very inefficient," Barilla told the magazine. While wheat isn't directly involved in the production of agriculture-based ethanol, farmers are switching to crops that will bring in more money, which is shrinking wheat stocks and driving prices higher.

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

	Thur.	Wed.	Chg.	Month chg.	YTD chg.
Treasurys
13-week Treasury bill	3.190%	3.315%	-0.125	-16.49%	-34.70%
5-year Treasury note yield	3.701%	3.850%	-0.149	-11.18%	-21.27%
10-year Treasury note yield	4.159%	4.269%	-0.110	-7.06%	-11.70%
30-year Treasury bond yield	4.534%	4.604%	-0.070	-4.57%	-5.89%
Currencies
U.S. Dollar Index	78.00	75.89	2.11	1.96%	-9.04%
British pound in U.S. dollars	$2.0458	$2.0525	-0.0067	-1.68%	4.40%
U.S. dollar in British pounds	£0.4888	£0.4872	0.0016	1.71%	-4.21%
Euro in U.S. dollars	1.4618	1.4661	-0.0043	0.98%	10.74%
U.S. dollar in euros	€ 0.6841	€ 0.6821	0.0020	-0.97%	-9.70%
U.S. dollar in yen	¥110.29	¥111.16	-0.87	-4.44%	-7.33%
U.S. dollar in Canadian dollars	$0.99	$0.97	0.02	4.38%	-15.42%
Canadian dollar in U.S. dollars	$1.02	$1.04	-0.02	-4.09%	18.37%
Commodities
Gold	$787.30	$814.70	-$27.40	-1.01%	23.40%
Copper	$3.0810	$3.2965	-$0.216	-11.29%	7.31%
Silver	$14.4820	$14.4820	-$0.58	0.30%	16.47%
Crude oil (NYMEX) (per barrel)	$93.43	$94.09	-$0.66	-1.16%	53.04%

By Charley Blaine and Elizabeth Strott