Dow off 283 on Ford loss, weak home sales

By Charley Blaine and Elizabeth Strott

Stocks offered a stark reminder today that the market's struggles of the last year aren't over yet.

The Dow Jones Industrial Average suffered its worst loss since June 26; the Standard & Poor's 500 and Nasdaq Composite indexes took their worst beatings since July 9.

The Dow fell 283 points, or 2.4%, to 11,349. The S&P 500 was off 30 points, or 2.2%, to 1,253, and the Nasdaq Composite Index was down 46 points, or 2%, to 2,280.

The problems: The lowest existing-home sales in a decade, rising unemployment claims and a huge loss from Ford Motor (F, news, msgs). Ford, reeling because high oil prices have caused massive damage to what had been the most profitable pieces of its business, fell 15.3% to $5.11. Rival General Motors (GM, news, msgs) fell 11.1% to $13, the worst performer among the 30 Dow stocks today.

The news ended what had been a strong uptick in financial stocks and slammed homebuilding stocks as well.

Shares of Washington Mutual (WM, news, msgs) fell 13.3% to $4.03. There were early reports that some buyers of commercial paper were shying from the company. The savings bank later said that it relies mostly on banking operations -- the taking of deposits -- to fund its operations, and the stock trimmed its loss.

Fannie Mae (FNM, news, msgs) and Freddie Mac (FRE, news, msgs), the big suppliers of mortgage capital to the housing industry, were down 19.9% to $12.02 and 18.4% to $8.81, respectively. The stocks were the third and fourth worst S&P 500 performers.

The five financial stocks in the Dow -- Citigroup (C, news, msgs), JPMorgan Chase (JPM, news, msgs), American International Group (AIG, news, msgs), Bank of America (BAC, news, msgs) and American Express (AXP, news, msgs) -- subtracted a combined 108 points from the blue-chip index, more than a third of the total loss.

Weak housing is a problem

Home building stocks fell because existing-home sales fell 2.6% in June to a seasonally adjusted annual rate of 4.86 million, a 10-year low, the National Association of Realtors said today. The inventory of unsold homes rose 0.2% to 4.49 million, an 11.1-month supply.

Roughly a third to 40% of the sales in June were foreclosed homes being sold by lenders or short sales. In the real estate world, a short sale occurs when the owner accepts a price that's lower than the balance on existing the mortgage.

The median sales price fell 6.1% to $215,000 from June 2007.

Pulte Homes (PHM, news, msgs) fell 13.9% to $11.03, and CEO Richard Dugas told CNBC this afternoon that the company isn't yet seeing anything resembling a market bottom.

Buyers of new homes face three problems, Dugas said:

• They're worried about making an investment in a property when prices may fall.

• They're having problems selling their current homes.

• They're having problems getting mortgages. Lenders are being tougher in deciding who gets a loan, he said.

While there is some evidence that new home sales are recovering in some of the hardest-hit markets like Southern California, Dugas said, existing-home prices haven't corrected enough. He thinks they'll have to come down 10% to 15% from current levels.

• Video: Pulte Homes CEO Richard Dugas discusses the housing market

Meanwhile, initial jobless claims rose by 34,000 to 406,000 last week, the Labor Department reported this morning. It was the highest level of first-time jobless claims since the week ending March 29.

Energy prices -- New York close

	Wed.	Tues.	Chg.	Month chg.	YTD chg.
Crude oil (NYMEX) (per barrel)	$125.49	$124.44	$1.05	-10.36%	30.75%
Heating oil (per gallon)	$3.5671	$3.5501	$0.0170	-8.60%	34.64%
Natural gas (per million BTU)	$9.3230	$9.7880	-$0.4650	-30.18%	24.59%
Unleaded gasoline (per gallon)	$3.0594	$3.0344	$0.0250	-12.63%	22.83%

A hard search for winners

Only four Dow stocks were higher on the day -- Merck (MRK, news, msgs), Johnson & Johnson (JNJ, news, msgs), 3M (MMM, news, msgs) and IBM (IBM, news, msgs), along with just 68 S&P 500 stocks and 11 stocks in the Nasdaq-100 Index ($NDX.X, news, msgs)

Declining stocks were ahead of gainers 4-to-1 on the New York Stock Exchange and 2.2-to-1 on Nasdaq.

One bit of good news for investors was an 11.6% gain to $78.72 for online retailer Amazon.com (AMZN, news, msgs) and a 17% gain to $52.43 for Qualcomm (QCOM, news, msgs), which designs operating systems for cell phones.

Amazon reported very strong earnings late Wednesday.

Qualcomm jumped after settling a patent dispute with Finnish phone giant Nokia (NOK, news, msgs). Qualcomm was the top S&P 500 stock, with Amazon the third-best performer in the index.

Crude oil closed up $1.07 to $125.49 just before the close after finishing at $124.44 on Wednesday.

Airline stocks were sharply lower, and energy stocks were mixed. All 20 stocks in the Dow Jones Transportation Average ($DJT) were lower; the index was down 193 points, or 3.8%, to 4,945. Continental Airlines (CAL, news, msgs) was down 16.9% to $12.30. Southwest Airlines (LUV, news, msgs) was down 6.2% to $14.90, despite reporting better-than-expected earnings and its 69th consecutive profitable quarter.

Big loss at Ford

Soaring gasoline prices have caused a lot of pain to drivers -- and to Ford Motor, which got slammed in the second quarter.

This morning, the U.S. automaker reported a whopping loss of $8.7 billion, or $3.88 per share, as more consumers shifted away from sport-utility vehicles and trucks to smaller, more fuel-efficient cars. Excluding items, Ford lost $1 billion, or 62 cents per share, worse than analysts' expectations of a 28-cent-per-share loss.

Ford reported a profit of $750 million, or 31 cents per share, last year.

"This is going to be an extremely painful year," Mirko Michelin, a senior portfolio manager at Fifth Third Asset Management, told Bloomberg News. "The F-150 is really where they've made money for years, and that's gone." Sales of the F-Series trucks fell 31% in the quarter, to 126,575.

The automaker wrote down assets of $5.3 billion for its auto business and $2.1 billion on leases at Ford Motor Credit.

"The second half will continue to be challenging, but we have absolutely the right plan to respond to the changing business environment and begin to grow for the long term," Chief Executive Officer Alan Mulally said in a statement.

• Video: Alan Mulally discusses his plans for Ford

The company said it will delay the launch of the newly designed F-150 pickup, once the all-time best-selling vehicle in the U.S. It also will convert three truck plants in the U.S. to make fuel-efficient cars and double hybrid production by next year.

Three big earnings reports

Dow Chemical (DOW, news, msgs) this morning reported a 27% drop in second-quarter earnings, as energy and raw materials costs soared.

Dow earned $762 million, or 81 cents per share, down from $1.04 billion, or $1.07 per share, a year ago. Wall Street was looking for 85 cents per share.

Sales, on the other hand, jumped 23% to $16.4 billion.

"There is no question that our emerging geographies strategy has served us well, typical of many international corporations," CEO Andrew Liveris told Reuters. "But the U.S. demand destruction is still yet to really be felt around the world."

The stock was down 3.3% to $33.11.

Drug giant Eli Lilly (LLY, news, msgs) earned $958.8 million, or 88 cents per share, in the second quarter, up from $663.6 million, or 61 cents per share, a year ago.

Those results missed the consensus estimate of 99 cents, and the company lowered full-year guidance to between $3.79 and $3.94 per share, down from a previous forecast of $3.90 and $4.05. Sales were strong, up 11% to $5.15 billion during the quarter, thanks to its antidepressant drug Cymbalta and its impotence drug Cialis.

Shares of Lilly were up 0.8% to $48.

Dow component 3M earned $945 million, or $1.33 per share, in the second quarter, compared to $1.25 per share a year ago. Excluding items, 3M earned $1.39 per share, topping analysts' consensus estimate of $1.34 per share.

3M shares were up 0.4% to $71.05.

Amazon.com profit doubles

Amazon.com doesn't appear to be suffering from the economic slowdown.

• Video: Check the lateston Amazon.com

Revenue also soared, rising 41% to $4.06 billion.

The online retailer late Wednesday reported quarterly earnings of $158 million, or 37 cents per share, more than double the $78 million, or 19 cents per share, the company earned in the same period a year ago.

Analysts had been looking for earnings of 26 cents on revenue of $3.94 billion.

Amazon's 11.6% stock price gain came on top of a gain of nearly 4% on Wednesday before the report was released.

Microsoft's Ballmer says search is critical to online business

Microsoft (MSFT, news, msgs) shares fell 3.8% to $25.44 today as CEO Steve Ballmer defended the software maker's decision to invest heavily in its unprofitable online business. But The Associated Press said Ballmer shed little light today on specific steps it will take to challenge Google (GOOG, news, msgs) in the wake of the failed bid to buy Yahoo (YHOO, news, msgs). (Microsoft is the publisher of MSN Money.)

Analysts arrived for a yearly meeting at Microsoft's headquarters in Redmond, Wash., hoping for new details about the software maker's online strategy, on the heels of Wednesday's news that Kevin Johnson, a key executive in Microsoft's pursuit of Yahoo, is stepping down to be CEO at Juniper Networks (JNPR, news, msgs).

Ballmer filled in for Johnson, president of Microsoft's Windows and online operations since 2005, to sketch out how the software maker is thinking about investing in its online business, the AP said. Last week, the company announced $500 million of additional spending for fiscal 2009, but said little about where the money would go.

Ballmer didn't disclose dollar amounts, but indicated Microsoft would focus the bulk of that investment on search technology, data center infrastructure, Web indexing and marketing. He called search the mission-critical part of the online business.

Google fell 2.8% to $475.62. Yahoo was up 0.7% to $20.53.

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

	Wed.	Tues.	Chg.	Month chg.	YTD chg.
Treasurys
13-week Treasury bill	1.610%	1.545%	0.065	-5.57%	-48.73%
5-year Treasury note yield	3.354%	3.535%	-0.181	0.39%	-2.92%
10-year Treasury note yield	4.016%	4.148%	-0.132	0.93%	-0.47%
30-year Treasury bond yield	4.611%	4.700%	-0.089	1.77%	3.41%
Currencies
U.S. Dollar Index	73.125	73.040	0.085	0.45%	-4.65%
British pound in dollars	$1.9877	$1.9980	-0.0103	-0.28%	-0.08%
Dollar in British pounds	£0.5031	£0.5005	0.0026	0.28%	0.08%
Euro in dollars	$1.5681	$1.5694	-0.0012	-0.44%	7.29%
Dollar in euros	€ 0.6377	€ 0.6372	0.0005	0.44%	-6.80%
Dollar in yen	107.56	107.91	-0.35	1.29%	-3.84%
Canadian dollar in U.S. dollars	$0.989	$0.989	-$0.0005	0.89%	-0.43%
U.S. dollar in Canadian dollars	$1.012	$1.011	$0.0012	-0.86%	0.45%
Commodities
Gold	$922.30	$948.50	-$26.20	-0.65%	10.06%
Copper	$3.5770	$3.6905	-$0.11	-7.87%	17.63%
Silver	$17.2980	$18.0050	-$0.71	-1.21%	15.94%
Corn	$5.7300	$5.7150	$0.02	-20.94%	25.80%
Crude oil (NYMEX) (per barrel)	$125.49	$124.44	$1.05	-10.36%	30.75%