GE's big miss brings worry back to Wall St.

By Charley Blaine and Elizabeth Strott

General Electric's (GE, news, msgs) profit miss and weak 2008 outlook battered stocks Friday and put investors on edge just before the first-quarter earnings season jumps into high gear next week.

Investors will be watching a number of key stocks closely, and earnings misses could tip the market over again. Stocks to watch: IBM Corp. (IBM, news, msgs), which reports after Wednesday's close; Google (GOOG, news, msgs), which reports on Thursday; and Wachovia (WB, news, msgs), which reports on Friday and is exposed to problems in the mortgage market.

Largely because of GE, which fell nearly 13% to $32.05, the Dow Jones industrials fell 257 points, or 2%, to 12,325. The Standard & Poor's 500 Index was off 28 points, or 2%, to 1,333. And the Nasdaq Composite Index dropped 61 points, or 2.6%, to 2,290.

The Dow's loss was its worst since March 19, when it fell 293 points. The S&P 500 decline was its worst percentage loss since March 14 and worst point loss since March 6. And the Nasdaq's sell-off was its biggest decline since it fell 73 points on Feb. 5.

"GE is a reminder that there is still bad news out there," John Praveen, chief investment strategist at Prudential International Investments Advisers, told Reuters.

More than 366 million GE shares changed hands on Friday -- 19 times its daily average and the equivalent of a quarter of the total volume of shares traded on the day on the New York Stock Exchange.

Not only was GE Friday's worst performer among the 30 Dow stocks, it was also the worst-performing S&P 500 stock. Its pullback wiped out nearly $47 billion in shareholder wealth. Only one Dow stock was up on the day: Wal-Mart Stores (WMT, news, msgs), up 14 cents to $54.80, and just 40 S&P 500 stocks, led by insurance company Safeco (SAF, news, msgs), up 2.4% to $44.90.

Only six Nasdaq-100 ($NDX.X) stocks had gains on Friday; the index was off 51 points to just under 1,802. The index was slammed by losses in Apple (AAPL, news, msgs), Dell Inc. (DELL, news, msgs), Research In Motion (RIMM, news, msgs), Microsoft (MSFT, news, msgs), Qualcomm (QCOM, news, msgs) and Google. (Microsoft is the publisher of MSN Money.)

Investors, when they were buying stocks on Friday, were looking for safety. As a result, utilities were relatively strong. Of the 42 domestic indexes that Market Dispatches tracks, only the Dow Jones Utilities Average ($UTIL) showed a gain on the day, up 1.4 points to 500. It's up 4.4% in April.

What GE hath wrought

The first problem that GE created on Friday was credibility. The company gave investors no warning that it would deliver a profit miss.

"GE never surprises us, and they had the whole month of March to let us know. All they had to say is, for the love of God, business is actually slow!" groused Art Hogan, chief market strategist at Jefferies & Co., to Dow Jones.

And GE's weak outlook, particularly because of problems with its financial-services businesses, made some investors worry that IBM might disappoint when its earnings come out on Wednesday. IBM was off 2.3% to $116 and contributed about 23 points to the Dow's loss.

IBM actually raised its 2008 earnings guidance to "at least $8.25 a share" on Feb. 26. But that guidance was issued before the implosion of investment bank Bear Stearns (BSC, news, msgs) and the Federal Reserve-assisted merger deal with JPMorgan Chase (JPM, news, msgs) in mid-March.

The second problem created by GE was to add fear and unease back into the market. Between the March 17 intraday low of 1,256.98, which came after the Bear Stearns rescue, and Thursday, the S&P 500 was up about 8.2%, and it looked to have established a support level along its 50-day moving average.

Friday's sell-off raises the specter that the S&P 500 could test 1,256.98 again.

With Friday's loss, the Dow finished down 2.3% for the week but is still up 0.4% for the month. The S&P 500 fell 2.7% but is up 0.8% on the month. The Nasdaq lost 3.4% but up 0.5 in April. For the year, the Dow is down 7.1%, the S&P 500 9.2% and the Nasdaq 13.7%.

Crude oil was lower for much of Friday, but it recovered to $110.14, up 3 cents. For the week, crude gained 3.7% and is up nearly 15% this year.

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The markets for the week

	Close for week	Wk. ago close	% chg.	YTD. chg.
Dow Jones industrials	12,325.42	12,609.42	-2.25%	-7.08%
S&P 500	1,332.83	1,370.40	-2.74%	-9.23%
Nasdaq Composite	2,290.24	2,370.98	-3.41%	-13.65%
Russell 2000	688.16	713.73	-3.58%	-10.17%
Crude oil per barrel	$110.14	$106.23	3.68%	14.75%
10-yr. Treasury yield	3.47%	3.48%	-0.29%	-13.98%
Gold per troy ounce	$927.90	$913.20	1.61%	10.73%

Financial-services woes hits GE profits

GE earned $4.3 billion, or 43 cents per share, down from $4.57 billion, or 44 cents per share, in the first quarter of 2007. Earnings from continuing operations were a penny better, at 44 cents per share, but analysts had expected GE to earn 51 cents per share.

GE cited "a slowing U.S. economy and difficult capital markets" for the decline in profit. Revenue rose 8% to $42.24 billion in the first quarter.

While the company's biggest problem was a 20% decline in earnings from its financial-services businesses, it also reported profit declines in its health-care and industrials businesses. Four of its six big operating units saw profit declines.

"We knew the first quarter was going to be challenging, but the extraordinary disruption in the capital markets in March affected our ability to complete asset sales and resulted in higher mark-to-market losses and impairments," Chief Executive Officer Jeff Immelt said in a press release. He said that cut earnings by 5 cents per share.

GE provides a wide range of industrial products, including aircraft engines, power-generation equipment, security technology and health-care products. It also provides consumer financing and owns the NBC broadcast network.

• Video: More on GE's earnings

Immelt offered a more positive outlook for coming quarters. "This is just a bump in the road," Immelt told CNBC Friday. "We believe in the company, and we think strategically the company is in good shape." GE's chief also said that the Bear Stearns (BSC, news, msgs) collapse, which hurt GE's financial businesses, took place just days after he had reaffirmed guidance for the quarter in March. The crisis had immediate impacts on its financial services businesses.

Still, GE lowered its 2008 guidance to between $2.20 and $2.30 per share, below the consensus estimate of $2.43 per share.

Goldman Sachs (GS, news, msgs) analyst Deane Dray cut GE to "neutral" Friday and removed it from Goldman's "America's Buy List," Dray said, citing "credibility concerns."

On Monday, Alcoa (AA, news, msgs) kicked off earnings season with a whimper, setting the tone for a dismal quarter of earnings. Alcoa's profit fell 52% and earnings missed analysts' expectations. Earlier in the week, United Parcel Service (UPS, news, msgs) and Washington Mutual (WM, news, msgs) warned they would miss first-quarter expectations because of the weakening economy and the market meltdown.

Washington Mutual was off 4.1% to $10.95 on Friday after Goldman Sachs recommended that investors sell the stock short. The investment bank said its analysis of the company's finances suggest it is looking at $17 billion to $23 billion in losses on bad mortgages.

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Earnings for S&P 500 companies are expected to decline 12% this quarter, according to Thomson Financial. While grim, it's better than the 25.1% slump in earnings seen in the fourth quarter of 2007.

Consumer confidence slumps

Adding to Friday's woes was a report on consumer confidence that was also grim.

The University of Michigan/Reuters index on consumer sentiment fell to a reading of 63.2 in April, the lowest level since March 1982. The index showed a reading of 69.5 in March.

"Consumers have very little to smile about," said Ryan Sweet, economist at Moody's Economy.com, to Bloomberg News. "Measures of consumer confidence are consistent right now with a recession."

Economists had expected a reading of 68.8.

Energy prices -- New York close

	Fri.	Thur.	Chg.	Month chg.	YTD chg.
Crude oil (NYMEX) (per barrel)	$110.14	$110.11	$0.03	8.43%	14.75%
Heating oil (per gallon)	$3.1975	$3.1940	$0.0035	4.86%	20.69%
Natural gas (per million BTU)	$9.9010	$10.0980	-$0.1970	-1.98%	32.31%
Unleaded gasoline (per gallon)	$2.8073	$2.7921	$0.0152	7.30%	12.71%

Cancellations could cost American millions

It's been a tough week for AMR Corp.'s (AMR, news, msgs) American Airlines.

American has canceled thousands of flights to fix wiring on its MD-80 planes. The airline grounded an additional 570 flights Friday, bringing the number of cancellations above 3,000 for the week.

• Why is the MD-80 still flying?

All those canceled flights mean angry, hungry and tired passengers -- and the cost of American's struggles could "be in the tens of millions," Chief Executive Officer Gerard Arpey said Thursday. "I take full personal responsibility for us being in this situation."

At least 250,000 passengers have been affected by the cancellations. Most travelers received $500 travel vouchers, Arpey said, and American is paying for stranded passengers' meals and hotel rooms.

Shares of AMR managed to rise 8 cents to $9.95 by midday.

• Video: Some in Congress want airline changes

The flight groundings could become another problem in an already slowing economy, some say. "The U.S. airline industry is not simply an important sector of our national economy; its services fuel our entire economy," Basil Barimo, vice president of the Air Transport Association of America, told The Associated Press.

American said it expects to have all of its MD-80 planes back in the air by Saturday night.

Frontier Airlines files for Chapter 11

Another airline has been forced to seek bankruptcy protection.

Shares of Frontier Airlines (FRNT, news, msgs) plunged $1.10, or 70%, to 47 cents Friday after the airline said it has filed for Chapter 11 bankruptcy protection. The discount airline said its principal credit card processor would withhold significant payments from ticket sales, hurting the carrier's liquidity.

Frontier said it will continue operating, however, unlike ATA Airlines, Skybus and Aloha Airlines, all of which shut down operations after filing for bankruptcy protection in recent weeks.

Delta-Northwest deal back on track?

Delta Air Lines (DAL, news, msgs) pilots and the airline have agreed on a tentative contract, Bloomberg News reported.

The agreement could clear the way for a merger with Northwest Airlines (NWA, news, msgs), which could be announced as early as next week, Bloomberg reported. The pilots would get increased pay, as well as an equity stake in a merged airline.

"With oil at $110 per barrel and the weakening economy, Delta probably got to the point where they felt like they needed to move ahead," analyst Michael Derchin of FTN Midwest Research Securities told Bloomberg. "It always made strategic, long-term sense for these companies."

Delta and Northwest recently revived merger talks after scrapping discussions in March because senior pilots were holding out.

Shares of Delta rose 2.7% to $10.01 on Friday after gaining 9.4% on Thursday. Northwest shares added 0.8% to $10.96 after adding 12.6% on Thursday.

In related news, Delta late Thursday said it will report a net loss for the first quarter.

Genentech's profit rises

Biotech company Genentech (DNA, news, msgs) late Thursday reported a 12% jump in first-quarter profit, thanks to strong sales of its cancer drugs. But the stock was down 1.6% to $76.79 on Friday because sales of Avastin, its flagship drug, were lower than expected.

Genentech earned $790 million, or 74 cents per share, up from $709 million, or 66 cents per share in the same quarter last year. Excluding items, the drug maker earned 84 cents per share, topping analysts' estimates by 2 cents.

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Sales rose nearly 8% to $3.06 billion. Sales of Avastin, used to treat lung and colorectal cancer, rose 13% to $600 million, shy of the $624 million analysts had expected.

Avastin, cleared by the Food and Drug Administration as a breast-cancer treatment on Feb. 22, should see stronger growth in coming quarters, Rodman & Renshaw analyst Michael King told Reuters. The drug was cleared too late for it to impact first-quarter sales, King said.

Sales of Genentech's other drugs topped analysts' expectations. Sales of Rituxan, a treatment for rheumatoid arthritis and non-Hodgkin's lymphoma, rose 13% to $605 million, and sales of Herceptin, another treatment for breast cancer, rose 9% to $339 million.

Friday, Thomas Weisel Partners analyst M. Ian Somaiya downgraded Genentech to "market weight" from "overweight," citing the weak Avastin sales.

Analysts see Microsoft winning Yahoo

Things heated up in the battle between Yahoo (YHOO, news, msgs) and Microsoft on Thursday, with both sides bringing in ammunition.

Yahoo late Wednesday announced an advertising agreement with Google (GOOG, news, msgs) and published reports on Thursday said Yahoo was still in talks with Time Warner's (TWX, news, msgs) AOL about a possible partnership. Microsoft reportedly was in talks with News Corp. (NWS, news, msgs) about a joint bid for Yahoo.

Analysts still believe that Microsoft will end up buying Yahoo.

Yahoo's board is scheduled to hold a conference call Friday to discuss alternatives to Microsoft's $31-per-share offer, made on Feb. 1, which Yahoo rejected as too low. Microsoft over the weekend gave Yahoo three weeks to accept the offer. Yahoo responded by saying it was not opposed to a deal but that it wanted a better price.

"The structure of the AOL deal is likely to be less appealing to Yahoo shareholders than the straightforward Microsoft bid," Jefferies analyst Youssef Squali said to Reuters. "We believe that a 'clean' acquisition of Yahoo by Microsoft is still the most likely scenario."

Shares of Microsoft fell 2.9% to $28.28, and Yahoo shares were down 0.9% to $28.34 on Friday.

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

	Fri.	Thur.	Chg.	Month chg.	YTD chg.
Treasurys
13-week Treasury bill	1.160%	1.235%	-0.075	-14.07%	-63.06%
5-year Treasury note yield	2.574%	2.659%	-0.085	1.54%	-25.50%
10-year Treasury note yield	3.471%	3.532%	-0.061	0.14%	-13.98%
30-year Treasury bond yield	4.302%	4.342%	-0.040	-0.99%	-3.52%
Currencies
U.S. Dollar Index	72.065	72.420	-0.355	-0.49%	72.065
British pound in dollars	$1.9708	$1.9728	-0.0019	-0.65%	-0.93%
Dollar in British pounds	£0.5074	£0.5069	0.0005	0.65%	0.93%
Euro in dollars	1.5803	1.5751	0.0052	0.33%	8.12%
Dollar in euros	€ 0.6328	€ 0.6349	-0.0021	-0.33%	-7.51%
Dollar in yen	¥101.09	¥101.75	-0.66	1.28%	-9.62%
Canadian dollar in U.S. dollars	$0.978	$0.981	-$0.0026	0.08%	-1.46%
U.S. dollar in Canadian dollars	$1.023	$1.019	$0.0033	-0.10%	1.47%
Commodities
Gold	$927.00	$931.80	-$4.80	1.51%	10.62%
Copper	$3.9445	$3.9240	$0.02	10.38%	29.71%
Silver	$17.6900	$18.0430	-$0.35	4.99%	18.57%
Crude oil (NYMEX) (per barrel)	$110.14	$110.11	$0.03	8.15%	14.75%