Citi's big loss, weak retail sales batter stocks

The stock market was staggered today by a larger-than-expected loss for Citigroup (C, news, msgs) and a surprisingly weak report on retail sales that told investors the economy is slowing rapidly.

At the close, the Dow Jones industrials were down 277 points, or 2.2%, to 12,501. The Standard & Poor's 500 Index dropped 35 points, or 2.5%, to 1,381, and the Nasdaq Composite Index slumped 61 points, or 2.5%, to 2,418.

With today's close, there was grudging admission by many on Wall Street that the market correction may have a ways to go and that the slump that really began last summer may, in fact, turn out to be a bear market. A correction is a decline of 10% from a top; a bear market is a decline of 20%.

The Dow has lost nearly 764 points in the first 10 days of January, its worst point loss for the first 10 days of any year since Dow Jones & Co. increased the size of the index to 30 stocks in 1928. The 5.8% loss for the period is the Dow's worst since 1978, when the blue-chip index fell 7.15%.

The Dow and S&P 500 are down nearly 12% from their closing highs on Oct. 9. The Nasdaq is down 15.4% from its six-year high on Oct. 31.

Investors slam Intel

Citigroup's problems -- and a 41% cut in its dividend -- sent its shares down nearly 8% to $26.74, its lowest level since October 2002.

The market is likely to be pressured again on Wednesday because of a disappointing earnings report from semiconductor giant Intel (INTC, news, msgs).

Intel shares slumped more than 12% to $19.82 in after-hours trading. The stock had closed at $22.69 in regular trading, down 1.7%.

Intel said it earned 38 cents a share in the quarter on revenue of $10.7 billion. Wall Street had expected 40 cents in earnings and revenue of $10.84 billion.

Nonetheless, net income of $2.3 billion was up 51% from a year ago, and earnings were up 46%. Revenue was up 10.6% from a year ago.

The company's gross profit margin -- a key metric for investors -- was 58.1%, up 6.9 percentage points because of high volumes and lower unit costs. Investors had hoped that the gross margin would reach 60%.

Intel also disappointed with its forecast for the current quarter, projecting revenue of $9.4 billion to $10 billion with a gross profit margin of 56%.

Energy prices -- New York close

	Tues.	Mon.	Chg.	Month chg.	YTD chg.
Crude oil (NYMEX) (per barrel)	$91.90	$94.20	-$2.30	-4.25%	-4.25%
Heating oil (per gallon)	$2.5472	$2.5892	-$0.0420	-3.86%	-3.86%
Natural gas (per million BTU)	$8.1960	$8.3530	-$0.1570	9.53%	9.53%
Unleaded gasoline (per gallon)	$2.3092	$2.3728	-$0.0636	-7.29%	-7.29%

Boeing adds to the woes

Citigroup was the day's big problem, but things seemed to worsen after The Wall Street Journal reported that Boeing (BA, news, msgs) is going to announce more delays in the delivery of the 787 Dreamliner. The delays mean that the new airliner may not take its first flight until June, The Journal said. Boeing was down as much as 6.9% but closed down 4.7% to $77.86.

Citigroup's fourth-quarter results, which included a $17.4 billion write-down of mortgage-related assets, were a stark reminder that the problems of the subprime-mortgage mess were still unresolved.

But the banking giant also shed light on why the retail sales report was so disappointing. Citigroup wrote off $4 billion in credit costs in its U.S. consumer business to account for expected losses on auto loans, credit cards and mortgages. In blunter terms, Citigroup is having problems getting customers to pay off loans, and, apparently, the biggest problem is its credit card customers.

• Talk back: Is this a correction or start of a nasty bear market?

Citigroup's battered stock dragged down the shares of other big financial companies, including JPMorgan Chase (JPM, news, msgs), down 5.3% to $39.17; Wells Fargo (WFC, news, msgs), down 6.1% to $26.49; and Bank of America (BAC, news, msgs), down 3.4% to $37.88.

Techs continue to suffer

As Intel showed after the bell, there was little to cheer about today as Monday's big gains proved to be a fool's rally. All 30 Dow stocks were lower on the day; the closest stock to a winner was Home Depot (HD, news, msgs), which closed down 2 cents to $25.37.

In addition, 474 S&P 500 stocks and 87 Nasdaq-100 ($NDX.X) stocks were lower.

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In addition to financial stocks, technology shares were among the hardest hit on the day. Apple (AAPL, news, msgs) was off 5.5% to $169.04 and fell an additional 3% to $163.74 in after-hours trading.

The stock was hit despite CEO Steve Jobs' announcement at the Macworld Conference & Expo today that Apple has cut deals with major studios to sell movies from its iTunes store. Jobs also unveiled what he called the world's thinnest notebook computer, which is less than an inch thick, and said that Apple had sold more than 4 million iPhones today. But Wall Street was hoping that sales would for sales of 5 million units.

So far in January, Apple shares are down nearly 14.7%.

• What's surprising about Apple's news

Graphics chip maker Nvidia (NVDA, news, msgs) fell 7.4% to $26.73 after Deutsche Bank analyst Arnab Chanda downgraded the stock to "hold" from "buy," citing slowing demand. Nvidia makes chips used in Apple and Dell Inc. (DELL, news, msgs) machines.

Google (GOOG, news, msgs) was down 2.5% to $637.65.

Oil prices were lower, too. Crude was at $91.90, down 2.4% from Monday. And gold slipped back to $902.60 an ounce after hitting a record intraday high of $916.10.

Meanwhile, interest rates were falling as investors sought safety from the turmoil in the U.S. stock market. The 10-year Treasury yield was at 3.73%, down from 3.79% on Monday.

Airline stocks were higher -- just about the only group showing gains today -- after The Wall Street Journal reported that Delta Air Lines (DAL, news, msgs) is negotiating about a merger with United Airlines parent UAL (UAUA, news, msgs) and Northwest Airlines (NWA, news, msgs).

Delta jumped 4.4% to $15.98. UAL rose 4.5% to $34.57, and Northwest jumped 8.6% to $17.38. The Amex Airline Index ($XAL.X) was up 3.2% to 33.

For Citigroup, a dividend cut and new capital

Citigroup's report today also included two major announcements: the dividend cut to 32 cents from 54 cents and a new capital infusion of $12.5 billion from a number of investors.

"I think cutting the dividend is pretty negative," Dick Bove, an analyst at Punk, Ziegel, told CNBC this morning. "It is a clear sign of trouble in the business."

• Talk back: Did you expect this dismal news from Citigroup?

The new investment comes from Saudi Prince Alwaleed bin Talal, who has been the second-largest investor in Citigroup and $6.8 billion from the Government of Singapore Investment Corp. Also investing are former CEO Sanford Weill, and Capital Research, a big California money management company.

The cash infusion comes on top of a $7.5 billion stake that the company sold to a Middle Eastern government fund, the Abu Dhabi Investment Authority, in November.

• Video: More on Citi's huge loss

But there was no getting around the terrible earnings report: a quarterly loss of $9.83 billion, or $1.99 per share -- the first since Weill combined Citibank and Travelers Group in 1998, and more than double what analysts had expected.

The Dow component said it had earned $5.13 billion, or $1.03 per share, in the same period a year ago. Analysts' consensus estimate was a loss of 97 cents per share.

The bank said it will write down $18.1 billion on bad mortgage bets in the quarter.

Revenue slumped 70% to $7.22 billion from $23.83 billion a year ago.

The stock was punished additionally because Citigroup didn't announce a big job cut to bring down costs. Many analysts believe the company needs to cut upwards of 20,000 jobs, CNBC's Charles Gasparino has reported, but Citigroup announced only that will be cutting "at least" 4,200 jobs.

Mortgage woes hit State Street

State Street (STT, news, msgs), one of the nation's biggest asset managers, was also hit by the subprime-mortgage meltdown in the fourth quarter.

The company reported net income of $223 million, or 57 cents per share, down 28% from the $309 million, or 91 cents per share, it earned in the same period a year ago.

The finance company said its results include a charge of $279 million to cover lawsuits related to the subprime fallout. Excluding that charge, State Street earned $1.38 per share, ahead of Wall Street's estimate of $1.35 per share.

A continued weak outlook for 2008 pushed shares down 5.9% to $79.82. The company expects revenue growth of between 14% and 17%, below the consensus estimate of 18% growth.

Merrill gets capital boost

Citigroup wasn't the only financial company to announce a capital increase this morning.

Merrill Lynch (MER, news, msgs) said a group of foreign investors has pumped $6.6 billion into the company in exchange for convertible preferred stock that pays a 9% annual dividend and a 17% conversion premium.

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"One of my main priorities over the last several weeks has been to ensure Merrill Lynch's balance sheet is strong, and these transactions make certain that Merrill Lynch is well-capitalized," new CEO John Thain said in a statement.

Korean Investment, the Kuwait Investment Authority and Japan's Mizuho Corporate Bank were the three big investors, Merrill said.

Shares of Merrill slipped 4% to $53.79 this afternoon. The big brokerage house reports fourth-quarter earnings Wednesday morning.

Continued: December's surprising drop in retail sales

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