Market Dispatches

Market Dispatches6/26/2008 11:59 PM ET

Dow off 358 as crude tops $140

The Dow finishes at a two-year low, and crude oil briefly tops $140 as Libya threatens to cut output. GM closes at levels last seen in 1955. Research In Motion and Oracle drag techs lower. Financials slump after Goldman cuts its outlook on the group.

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By Charley Blaine and Elizabeth Strott

Crude oil topped $140 a barrel for the first time, and shares of General Motors (GM, news, msgs) fell to their lowest level since 1955 as stocks endured one of their worst beatings of the year.

The Dow Jones industrials fell 358 points, or 3%, to 11,453, its lowest level of the year and its worst close since Sept. 12, 2006. It was the Dow's third-biggest point loss of the year and the largest one-day loss since June 6, when the index fell nearly 395 points.

The Dow, in fact, is looking at its worst loss for a June since 1930.

GM was the biggest loser among the 30 Dow stocks, down 10.8% to $11.43 -- a level not seen since 1955, CNBC reported.

The Standard & Poor's 500 index was down 39 points, or 2.9%, to 1,283, its fourth-worst loss of the year and lowest close since March 17.

The Nasdaq Composite Index was off 80 points, or 3.3%, to 2,321, its second-worst loss of 2008 and lowest close since February, with Research In Motion (RIMM, news, msgs) falling 13.3% to $123.46. Nasdaq-100 Index ($NDX.X), which tracks the largest Nasdaq stocks, was off 78 points, or 4.1%, to 1,855.

The selloff spread across the entire market, with technology stocks hardest hit due to disappointment with earnings reports from Research In Motion and Oracle (ORCL, news, msgs).

And experts believe the weakness may extend into Friday. "There is real concern that global growth is going to seriously slow down," Eddie Bakker, managing director of equity sales and trading at Calyon Securities in New York, told Reuters.

"Most investors are going to sit on the sidelines until they're more certain the sharks have left the waters and it's safe to go back in," Bruce McCain, head of investment strategy at Key Private Bank, told Bloomberg News.

Citigroup (C, news, msgs) was off 6.3% to $17.67 after Goldman Sachs (GS, news, msgs) downgraded its rating on the stock and cut its outlook for financial stocks overall. Bank of America (BAC, news, msgs) was off 6.8% to $24.81 after announcing it will cut 7,500 jobs after completing its acquisition of Countrywide Financial (CFC, news, msgs) next week.

The selling left the Dow off 9.4% for the month and down 13.7% on the year. The S&P 500 is down 8.4% on the month and 12.6% on the year. The Nasdaq is off 8% for June and 12.5% for 2008.

If the Dow and S&P 500 were to end June today, their losses for June would be their worst since September 2002. The Nasdaq's loss for the month is shaping up to be its worst since January, when it fell 9.9%.

And the monthly loss for the Dow is shaping up as its worst June since 1930, when it fell 17.7%. The S&P 500's loss would be its worst for June since 1950, and the Nasdaq's June could be its worst since June 2002.

All three indexes are down more than 18% from records set last fall.

The only stocks in the market that showed any gains were gold stocks. Barrick Gold (ABX, news, msgs) was up 6.4% to $43.04.

All 30 Dow stocks closed lower. The smallest loss was ExxonMobil (XOM, news, msgs), down 1.4% to $86.41. Only 24 S&P 500 stocks were higher, along with five stocks in the Nasdaq-100 Index.

Among the day's winners: Smith & Wesson (SWHC, news, msgs), the handgun maker, up 6.7% to $5.45 after the Supreme Court overturned a gun control law in Washington, D.C.

Energy prices -- New York close
 Thur.Wed.Chg.Month chg.YTD chg.
Crude oil (NYMEX) (per barrel)$139.64$134.55$5.099.65%45.49%
Heating oil (per gallon)$3.8834$3.7492$0.13425.91%46.58%
Natural gas (per million BTU)$13.1300$12.7530$0.377012.19%75.46%
Unleaded gasoline (per gallon)$3.5113$3.3941$0.11724.87%40.97%

Libyan threat to cut oil output pushes crude up

Crude oil jumped above $140 a barrel to a record $140.05 before slipping back to $139.64, a new closing high. The jump came as Libya threatened to cut output, and the president of the Organization of Petroleum Exporting Countries president said crude may reach $170 by the summer because of the falling dollar.

The dollar fell in part on trader disappointment that the Federal Reserve chose not to raise interest rates after its meeting on Wednesday.

Libya threatened to curb output because of a U.S. law passed in January that allows terror victims to seize assets of foreign governments as compensation.

Libya's National Oil Corp. Chairman Shokri Ghanem declined to say when a decision would be made on whether to cut Libyan production or offer an idea on the size of any cut. Libya produced an average 1.85 million barrels of crude oil a day last year, or 2.2% of global supply, Bloomberg said.

Though crude rose, energy stocks were mostly lower on the day.

Some exceptions: Apache (APA, news, msgs), up 1.3% to $134.40; Diamond Offshore Drilling (DO, news, msgs), up 0.4% to $135.52; and Halliburton (HAL, news, msgs), up 0.3% to $51.01. Refiner Valero (VLO, news, msgs) was down 5.7% to $41.25.

GM at 53-year low

General Motors was trading at levels not seen since Dwight D. Eisenhower was president, according to CNBC, and its market cap is $6.4 billion, lower than companies including Avon Products (AVP, news, msgs) and SuperValu (SVU, news, msgs).

Goldman Sachs analyst Patrick Archambault cut his rating on GM to "sell" from "neutral" and lowered his price target to $11 from $19.

"We think GM's automotive cash flow burn this year and next is likely to lead it to look to raise capital, which we believe could lead to significant shareholder dilution and/or a cut to the company's dividend," Archambault wrote in a note to clients.

Stock Charts (Year)

General Motors
Graphical chart for GM
Honda Motor
Graphical chart for HMC
GM was the third-worst performer among S&P 500 stocks and was hurting any stock associated with the automotive industry.

Tire maker Goodyear (GT, news, msgs) was down 11.1% to $18.24. Ford (F, news, msgs) was off 2.2% to $5.07. Even Toyota Motor (TM, news, msgs) and Honda Motor (HMC, news, msgs) were lower, down 2.7% to $94.50 and 4.9% to $34.22, respectively, in New York trading.

RIM, Oracle woes hurt techs

Research In Motion late Wednesday said profit more than doubled in its fiscal first quarter, but that wasn't enough for investors.

Shares of RIM tumbled because the company said it expects earnings between 84 and 89 cents per share in the current quarter -- below analysts' expectations of 90 cents.

Research In Motion said it earned $482.5 million, or 84 cents per share, in its first quarter, up from $223.2 million, or 39 cents per share, in the same quarter last year. Revenue more than doubled to $2.24 billion.

Wall Street was looking for earnings of 85 cents per share on revenue of $2.27 billion.

"RIM is extremely focused on consumers right now," Global Crown Capital analyst Pablo Perez-Fernandez told Bloomberg News. As a result, he said, Apple's (AAPL, news, msgs) iPhone is a worry." (Apple fell 5.2% to $168.26.)

Oracle was falling -- despite earnings that beat the Street -- because of the software maker's anemic forecast.

Oracle reported better-than-expected fiscal-fourth-quarter profit late Wednesday, saying net income was $2.04 billion, or 39 cents per share -- up from $1.60 billion, or 31 cents per share, last year. Excluding items, earnings were 47 cents per share, topping analysts' estimates by 3 cents. Sales of new software rose 27% to $3.14 billion.

But looking ahead, Oracle said that earnings for its current quarter would be 26 to 27 cents per share; analysts expect earnings of 27 cents per share. Oracle also said sales will rise between 18% and 20%. That would be the slowest growth for the company since 2006.

"We are aware of the broader economic environment in which we operate, and we can't predict the economy from one quarter to the next," said Chief Financial Officer Safra Catz on a conference call with analysts.

Oracle shares fell 5% to $21.42 today.

"The good news is that the money to be spent is still there, despite the economic uncertainties. But there is still the risk that the spending environment will deteriorate in the remainder of the year," Knut Woller, an analyst for UniCredit, told MarketWatch.com.

Financials not so fine

Goldman Sachs this morning lowered its outlook on the U.S. financial sector to "neutral" from "attractive," saying that the tightening credit market will hamper the group's ability to recover soon.

Goldman said Citigroup may be walloped by $8.9 billion in write-downs in the second quarter.

Stock Charts (Year)

Merrill Lynch
Graphical chart for MER
Citigroup
Graphical chart for C
Citi may be forced to cut its dividend again, analyst William Tanona wrote in a note to clients: "We see multiple headwinds for Citigroup including additional write-downs, higher consumer provisions as a result of rapidly deteriorating consumer credit trends, and the potential for additional capital raises, dividend cuts, or asset sales."

Tanona added Citigroup to its "conviction sell" list and expects Citi to lose 75 cents per share in the quarter; the analyst had previously expected Citi to earn 25 cents per share.

Tanona also told clients that he expects Merrill Lynch (MER, news, msgs) to lose $2 per share in the second quarter -- far lower than his previous estimate of 25 cents per share in profit -- and expects $4.2 billion in second-quarter write-downs.

Merrill shares fell 6.8% to $33.05 this afternoon.

Meanwhile, Goldman Sachs itself was downgraded by Wachovia Securities to "market perform" from "outperform." Goldman closed down 4% to $176.26.

Anheuser-Busch to reject InBev offer

As expected, Anheuser-Busch (BUD, news, msgs) rejected the unsolicited $46.35 billion offer from InBev (BE:INB, news, msgs), saying that the $65-per-share bid is too low.

InBev will likely take the offer directly to Anheuser-Busch shareholders, as Anheuser-Busch's talks with Grupo Modelo about a deal haven't progressed, The Wall Street Journal reported. The U.S. brewing company already owns a 50% stake in Mexico's Grupo Modelo.

"To date, Anheuser-Busch and its board have largely ignored InBev's advances," analyst Craig Hutson of Gimme Credit, told MarketWatch.com. "The longer the company goes without engaging InBev's senior management, the more likely it becomes that InBev takes a hostile offer directly to . . . shareholders."

Anheuser-Busch is expected to defend its move to reject the offer by announcing that it is increasing its cost-cutting plan to $1 billion over next four years from $500 million, the report said.

Shares of Anheuser-Busch slipped 0.7% to $61.35 in regular trading but was up 0.7% to $61.76 in after-hours trading.

A change in Fed rhetoric

The Federal Reserve left interest rates on hold at 2% Wednesday, but there was a slight change to the language of its statement.

"The upside risks to inflation and inflation expectations have increased," the Fed's statement said. Downside risks to growth "appear to have diminished somewhat."

"The Committee expects inflation to moderate later this year and next year," the Fed said. "However, in light of the continued increases in the prices of energy and some other commodities and the elevated state of some indicators of inflation expectations, uncertainty about the inflation outlook remains high."

Most economists expected the Fed to keep rates steady, and some believe the Fed is in a quandary. The Fed has to consider the slowing economy along with the effects of an increase in inflation, evidenced by soaring food and energy prices. The weak dollar is also on the Fed's radar.

Reaction to the Fed's statement was mixed.

"The Fed will be on hold for a prolonged period due to the economic weakness," CJP Communications Chief Economist Stephen Kennedy wrote in a note to clients after the announcement. But the central bank "will raise rates early next year when growth picks up. Currently, there is substantial monetary easing in the pipeline, which -- coupled with the weak dollar and ongoing fiscal stimulus -- should boost economic activity by late this year or early next year."

Short hits from the markets -- 4 p.m.
 Thur.Wed.Chg.Month chg.YTD chg.
Treasurys
13-week Treasury bill1.680%1.760%-0.080-9.19%-46.50%
5-year Treasury note yield3.399%3.541%-0.142-0.23%-1.62%
10-year Treasury note yield4.033%4.115%-0.082-0.32%-0.05%
30-year Treasury bond yield4.603%4.657%-0.054-2.21%3.23%
Currencies
U.S. Dollar Index72.79073.290-0.500-0.22%-5.09%
British pound in dollars$1.9900$1.97550.01450.34%0.04%
Dollar in British pounds £0.5025£0.5062-0.0037-0.34%-0.04%
Euro in dollars$1.5753$1.56810.00721.25%7.78%
Dollar in euros€ 0.6348€ 0.6377-0.0029-1.23%-7.22%
Dollar in yen 107.36107.83-0.470.92%-4.01%
Canadian dollar in U.S. dollars$0.990$0.991-$0.0008-1.66%-0.26%
U.S. dollar in Canadian dollars$1.010$1.009$0.00081.62%0.19%
Commodities
Gold$915.10$882.30$32.803.13%9.20%
Copper$3.8250$3.7730$0.056.07%25.78%
Silver$17.2200$16.6070$0.612.10%15.42%
Corn$7.5375$7.3000$0.2425.78%65.48%
Crude oil (NYMEX) (per barrel)$139.64$134.55$5.099.65%45.49%

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