Market Dispatches

Market Dispatches1/22/2008 9:05 PM ET

Dow's 128-point loss is a victory

Thanks to the Fed's rate cut, the blue chips come back from a 464-point drop at the open. But skeptics aren't sure a bottom has been made. Apple shares slump as guidance disappoints. Stocks open higher in Tokyo. 

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Rarely can one say that a 128-point loss for the Dow Jones industrials is a good thing.

You can say that today. Thanks to a big rate cut from the Federal Reserve, the blue chips recovered from a slump of 464 points right after today's open to a close of 11,971.

Granted, the close was the first under 12,000 for the blue-chip index since Nov. 3, 2006. And the Dow failed at several runs at crossing the break-even level. Its high on the day was within 7 points of Friday's close.

Still, the close represented a recovery of 72% of its opening loss.

The Nasdaq Composite Index finished down 48 points, or 2%, to 2,292, its lowest close since Oct. 5, 2006. It had been down as much as 115 points. The Standard & Poor's 500 Index was down 15 points to 1,311, its lowest close since Sept. 11, 2006.

Whether the market can take today's rebound and move higher remains to be seen.

Investors were heavily selling shares of Apple (AAPL, news, msgs) in after-hours trading after the company seemed to disappoint Wall Street on its guidance for its fiscal second quarter. Shares were down more than 11% in after-hours trading.

At the same time, stocks in Tokyo opened higher. The Nikkei 225 Index ($N225) jumped up 3% to 12,949 after losses in eight of the prior 10 trading sessions.

    Other markets in Asia were moving higher after big losses on Monday and Tuesday.

    Traders may wait to make any big moves until after the Fed meets next week. Many analysts and economists see the Fed cutting rates again at that meeting, said Barry Ritholtz of Ritholtz Analytics, a market research and advisory firm.

    The Dow is down 15.5% since hitting its all-time high on Oct. 9, 2007. A correction is generally defined as a 10% decline, while a bear market is a 20% drop.

    The S&P 500 is down 16.2% since its high, also set on Oct. 9, 2007, and the Nasdaq is down 19.8% since hitting a six-year high on Oct. 31, 2007.

    On "Black Monday," Oct. 19, 1987, the Dow plunged 508 points, or 23%, to a level of 1,739. In today's terms, a 23% loss for the Dow would be a 2,782-point drop from Friday's closing price.

    Apple's weak guidance slams stock

    Apple shares were diving after the close despite strong first-quarter earnings.

    The problem seemed to be the company's guidance for the second quarter. The company projected $6.8 billion in revenue and 94 cents in earnings. The Street was looking for closer to $7 billion in revenue and $1.08 in earnings.

    In addition, the company's sales of its popular iPod music player missed analyst estimates. Apple said it sold 22.1 million iPods in the quarter; analysts had expected sales of 24.7 million units, CNBC's Jim Goldman reported.

    Stock Charts (Year)

    Apple
    Graphical chart for AAPL
    Texas Instruments
    Graphical chart for TXN
    The stock was down 11.4% to $137.93 in after-hours trading. If that price holds on Tuesday, the stock will have fallen 31% from their peak closing high of $199.83 on Dec. 28.

    In regular Nasdaq trading, the shares fell 3.5% to $155.64.

    The quarter itself was fine. Apple earned $1.76 a share on revenue of $9.6 billion. Earnings were up 54% from a year ago; revenue was up 35%. The company sold 2.3 million Macintosh computers, up 44% from a year ago. The revenue from those sales was up $47%. And 2.3 million iPhones were sold.

    Separately, shares of Texas Instruments (TXN, news, msgs) were up 4.2% to $30.19 in after-hours trading after reporting fourth-quarter earnings that were in line with Wall Street estimates.

    The company earned $756 million or 53 cents a share on revenue of $3.56 billion. Earnings were up 13% from a year ago. Revenue was up 2.7%. The shares had closed down 1.6% to $28.98 in regular New York Stock Exchange trading.

    What the Fed did

    Today, the Fed cut its federal funds rate, the rate banks charge each other for overnight loans, 0.75% to 3.5%. It also cut its discount rate by the same amount to 4%. The discount rate is the rate the Fed charges to member banks for short-term loans.

    If the Fed cuts rates again next week, the expectation is that the fed funds rate will move to 3%. The betting is for another rate cut.

    "The Committee took this action in view of a weakening of the economic outlook and increasing downside risks to growth," the Fed's statement read. "Appreciable downside risks to growth remain. The Committee will continue to assess the effects of financial and other developments on economic prospects and will act in a timely manner as needed to address those risks."

    The Fed moved because of the turmoil around the world set off by concerns that the U.S. economy was about to fall into a recession, if it wasn't there already. It was the first rate cut between scheduled meetings since Sept. 17, 2001, when it cut its fed funds rate to 3% from 3.5% in the aftermath of the Sept. 11, 2001 terror attacks.

    The Fed's move came before the market opened in the United States. Asian markets had slumped badly overnight. European markets had opened lower but recovered most of their losses on the Fed news.

    The British FTSE 100 Index ($GB:UKX), down as much as 4.3% during the day, rallied to close up 162 points, or 2.9%, to 5,740. The German Dax Index ($DE:DAX) finished down 0.3% to 6,769; it had been down as much as 5.4% early in the day. The FTSE 100 and the Dax indexes had fallen after a 5.5% and 7.2%, respectively, on Monday.

    What finally got the Fed to move seems to have been the terrible day global markets had on Monday. In addition, Wall Street was deeply worried about the financial condition of a number of bond insurance companies -- especially Ambac Financial (ABK, news, msgs) and MBIA (MBI, news, msgs) that sell protection to issuers of corporate and municipal bonds. Ambac and MBIA were the two top performers among S&P 500 stocks, rising 29% to $7.97 and 47% to $12.53, respectively.

    The Fed's move, however, wasn't without controversy. Many money managers and Wall Street traders had been begging the Fed to cut rates for weeks because the economy was giving strong signals of slowing markedly. New home construction and home sales have been dropping since late 2006, and the Christmas holiday shopping season appears to have been surprisingly soft.

    And the global reaction to the increasing evidence of a U.S. slowdown suggests that traders believe the world economy can't grow without a strong U.S. economy.

    At the same time, a number of critics believe the Fed's move leaves the economy vulnerable to a major bout of inflation. The biggest downside risk, Ritholtz says, is "$6-a-gallon gasoline and $7-a-gallon milk."

    As important are two other issues, Ritholtz said:

    • The Fed move prevented a big ugly sell-off from cleaning out the excess speculation that's been in the market for months.

    • It leaves the Fed open to the charge that it will cave whenever Wall Street wants.

    Energy prices -- New York close
     Tues.Fri.Chg.Month chg.YTD chg.
    Crude oil (NYMEX) (per barrel)$89.85$90.57-$0.72-6.39%-6.39%
    Heating oil (per gallon)$2.4726$2.5074-$0.0348-6.67%-6.67%
    Natural gas (per million BTU)$7.6700$7.9930-$0.32302.50%2.50%
    Unleaded gasoline (per gallon)$2.2806$2.3034-$0.0228-8.44%-8.44%

    A rebound for retailers, banks; a beating for energy, techs

    While the market's close was much better than the open, a loss is still a loss. In fact, only eight of the 30 Dow stocks finished higher on the day, along with fewer than 200 S&P 500 stocks and about 20 Nasdaq-100 ($NDX.X) stocks.

    Financial companies and retailers were among the bigger winners of the day.

    Stock Charts (Year)

    Home Depot
    Graphical chart for HD
    Google
    Graphical chart for GOOG
    Home Depot (HD, news, msgs) was the top Dow performer with a 7.2% gain to $28.17, followed by Wal-Mart Stores (WMT, news, msgs), up 3.4% to $49.20. Drug giant Merck (MRK, news, msgs) was the biggest lower, down 4.1% to $51.12.

    Banks and financials moved higher in reaction to the Fed news. Bank of America (BAC, news, msgs) was up 3.9% to $37.39 despite a 95% decline in fourth-quarter earnings from a year ago.

    The biggest drags on the market were tech stocks and energy.

    In addition to Apple, Oracle (ORCL, news, msgs) fell 6.3% to $20.22. EBay (EBAY, news, msgs) was off 4.2% to $27.13. Google (GOOG, news, msgs) fell 2.7% to $584.35, its first close under $600 since Oct. 8. The stock is down 21% since hitting a closing high of $741.79 on Nov. 6.

    Energy shares moved lower when crude oil fell to $89.85 a barrel. The Amex Oil Index ($XOI.X) was down 2.9% to 1,309. ExxonMobil (XOM, news, msgs) was the fifth-worst Dow performer, down 3.1% to $82.45.

    How the market's turmoil compares

    At its low today at about 9:35 a.m. ET, the Dow was at 11,635, down 464 points from Friday.

    If the Dow had finished that low -- and, thankfully, it didn't -- the point loss would have ranked sixth among the biggest Dow point losses and the worst since the blue-chip index fell 685 points on Sept. 17, 2001, the first day of trading after the Sept. 11 terror attacks. That loss was also the Dow's biggest one-day point loss.

    But the last 12 months have seen two of the biggest point losses: 416 points on Feb. 27 and 387 points on Aug. 9. In addition, 2007 produced six of the 20 biggest point losses. The Jan. 17 loss of 307 points would rank 22nd.

    But the percentage-loss story is quite different. The Oct. 19, 1987, crash, which saw the Dow fall 508 points, was the index's biggest one-day loss: 22.6%. Eight of the top 10 losses came between 1929 and 1933. The Sept. 17, 2001, loss was 7.1%, which ranks 15th. The Feb. 27, 2007, slump represented only a 3.3% loss.

    The Dow's biggest losses 
    Point losses Percentage losses 

    Sept. 17, 2001

    8,920.70

    -684.81

    Oct. 19, 1987

    1,738.74

    -22.61%

    April 14, 2000

    10,305.77

    -617.78

    Oct. 28, 1929

    260.64

    -13.47%

    Oct. 27, 1997

    7,161.15

    -554.26

    Oct. 29, 1929

    230.07

    -11.73%

    Aug. 31, 1998

    7,539.07

    -512.61

    Oct. 5, 1931

    86.48

    -10.73%

    Oct. 19, 1987

    1,738.74

    -507.99

    Nov. 6, 1929

    232.13

    -9.92%

    March 12, 2001

    10,208.25

    -436.37

    Aug. 12, 1932

    63.11

    -8.40%

    Feb. 27, 2007

    12,216.24

    -416.02

    Jan. 4, 1932

    71.59

    -8.10%

    July 19, 2002

    8,019.26

    -390.23

    Oct. 26, 1987

    1,793.93

    -8.04%

    Aug. 9, 2007

    13,270.68

    -387.18

    June 16, 1930

    230.05

    -7.87%

    Sept. 20, 2001

    8,376.21

    -382.92

    July 21, 1933

    88.71

    -7.84%

    BofA profit plummets

    Bank of America's decent stock performance came after reporting net income of $268 million, or 5 cents per share, down 95% from $5.26 billion, or $1.16 per share a year ago.

    The bank wrote down $5.3 billion related to collateralized debt obligations.

    Video on MSN Money

    Jim Jubak
    Big bond worries on Wall Street
    The stock market is in a panic over companies you've never heard of -- Ambac, MBIA and the like. Why? Because if these little-known bond insurers lose their AAA-credit ratings, troubled banks like Citigroup may have to pay more to raise capital, says MSN Money's Jim Jubak.
    The nation's second-largest banking company is cautiously optimistic about 2008. But CEO Kenneth Lewis said the company believes that economic growth will be anemic at best in the first half.

    Despite widespread speculation that Bank of America may try to reprice or abandon altogether its plans to acquire the troubled mortgage lender Countrywide Financial (CFC, news, msgs), the bank remains committed to closing the deal, Lewis told the New York Times.

    When the stock deal was announced just a little more than a week ago, it was priced at $4 billion.

    Ambac's huge loss and big stock price gain

    Bond insurer Ambac Financial this morning reported a whopping fourth-quarter loss of $3.3 billion, or $31.85 per share, because of massive write-downs on bad mortgage bets.

    Stock Charts (Year)

    Ambac Financial
    Graphical chart for ABK
    On an operating basis, Ambac reported a loss of $6.21 per share, a huge drop from the profit of $1.88 per share it earned in the same period last year. Analysts had expected a loss of $3.50 per share.

    Ambac wrote down $5.2 billion on subprime-mortgage losses in the quarter.

    The company also said it is "evaluating strategic alternatives" to try to keep its AAA rating with ratings companies Moody's and Fitch.

    Yahoo to cut jobs

    Internet-search giant Yahoo (YHOO, news, msgs) is cutting back.

    The company is going to cut hundreds of jobs, according to published reports, in an effort to save costs and reorganize.

    "Yahoo has embarked on a multiyear transformation that includes making tough decisions about the business to help the company grow," a company statement said today. The company expects to "invest in some areas, reduce emphasis in others, and eliminate some areas of the business that don’t support the company's priorities."

    Shares of Yahoo shed 4.1%, to $19.92 and were down an additional 2.6% to $19.41 in after-hours trading.

    Yahoo is expected to make the announcement when it reports fourth-quarter earnings on Jan. 29.

    Another mining deal on the way?

    Brazil's Companhia Vale do Rio Doce (RIO, news, msgs) on Monday said it has had talks about a possible combination with the Anglo-Swiss mining company Xstrata (XSRAF, news, msgs).

    A deal could be valued at $90 billion, according to the Brazilian paper, Valor Economico.

    Xstrata shares in New York were up 1.1% to $66.50. Vale Rio Doce shares were down nearly 7% to $26.85.

    Talk of mergers has been spreading in the mining business. In late October, BHP Billiton (BHP, news, msgs) offered $142 billion for Rio Tinto (RTP, news, msgs) and has until Feb. 6 to boost its bid; Rio Tinto had rejected BHP's bid as too low.

    Vale said a deal with Xstrata would depend on what's going on in the global markets and that continued turmoil in credit markets could prevent a deal from happening.

    Vale also said it is exploring other potential deals.

    DuPont earnings up 11%

    Dow component DuPont (DD, news, msgs) reported fourth-quarter earnings of $545 million, or 50 cents per share, up from earnings of 45 cents per share in the same period a year ago.

    On an adjusted basis, DuPont earned 57 cents per share. Analysts were looking for earnings of 49 cents per share. Revenue rose 11% to $6.98 billion in the quarter.

    DuPont forecast 2008 earnings between $3.35 and $3.55 per share. The consensus estimate is $3.43 per share.

    Shares were down 0.4% to $42.54.

    Short hits from the markets -- 4 p.m.
     Tues.Fri.Chg.Month chg.YTD chg.
    Treasurys
    13-week Treasury bill2.230%2.790%-0.560-28.98%-28.98%
    5-year Treasury note yield2.623%2.850%-0.227-24.08%-24.08%
    10-year Treasury note yield3.484%3.648%-0.164-13.66%-13.66%
    30-year Treasury bond yield4.227%4.297%-0.070-5.20%-5.20%
    Currencies
    U.S. Dollar Index76.52576.980-0.455-0.22%-0.22%
    British pound in dollars$1.9616$1.9646-0.0031-1.39%-1.39%
    Dollar in British pounds £0.5098£0.50900.00081.41%1.41%
    Euro in dollars1.46461.4680-0.00340.21%0.21%
    Dollar in euros€ 0.6828€ 0.68120.0016-0.20%-0.20%
    Dollar in yen 106.84106.670.17-4.48%-4.48%
    U.S. dollar in Canadian dollars$0.974$1.027$0.0000-1.95%-1.95%
    Canadian dollar in U.S. dollars$1.028$0.973$0.00011.99%1.99%
    Commodities
    Gold$890.30$881.70$8.600.98%6.24%
    Copper$3.1965$3.2345-$0.04-1.17%5.11%
    Silver$16.1050$16.2150-$0.11-0.68%7.94%
    Crude oil (NYMEX) (per barrel)$89.85$90.57-$0.72-0.79%-6.39%

    By Charley Blaine and Elizabeth Strott, MSN Money

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