Dow off 206 on economic worries, Exxon miss

By Charley Blaine and Elizabeth Strott

The stock market ended July on a nasty down note as investors continued to worry about the economy and were disappointed by earnings from ExxonMobil (XOM, news, msgs).

The Dow Jones industrials closed down 206 points, or 1.8%, to 11,378, and the Standard & Poor's 500 Index was off 17 points, or 1.3%, to 1,267. The Nasdaq Composite Index, up most of the day, finally closed down 4 points, or 0.2%, to 2,326.

The Dow's loss wiped out all of the blue-chip index's 186-point gain on Wednesday.

The selling came in part after former Federal Reserve Chairman Alan Greenspan told CNBC that he still thinks there's a 50% chance of a recession because of the credit-market crunch and subprime mortgage crisis. Not only is the U.S. economy slowing, he noted, the economies in Europe and Asia also are slowing.

Plus, he said, falling U.S. home prices are "nowhere near the bottom," and the housiing slump is showing few signs of abating.

Shares of Fannie Mae (FNM, news, msgs) and Freddie Mac (FRE, news, msgs) tumbled when the former Fed boss said they were a "major accident waiting to happen."

• Video: See Greenspan's comments on the economy

Today's stock market sell-off sets up an important open on Friday when the Labor Department releases its monthly report on nonfarm payrolls and unemployment for July. The consensus estimate is for a loss of 60,000 or so jobs. But there's hope, based on a report from payroll processor ADP, for a larger gain.

In addition, automakers report sales for July. Most are expecting a big drop in sales from a year ago because of soaring gas prices.

Exxon shares fell 4.7% to $80.43 and subtracted 22 points from the Dow, despite reporting the biggest quarterly profit ever today.

A disappointing outlook from Walt Disney (DIS, news, msgs) and weakness in United Technologies (UTX, news, msgs), Chevron (CVX, news, msgs), Caterpillar (CAT, news, msgs) and Boeing (BA, news, msgs) also pushed the Dow lower.

Boeing fell 4.3% to $61.11, a 3-year low, after Banc of America Securities said there was a 70% chance of a strike hitting the aerospace giant this year.

• Get free, real-time stock quotes on MSN Money

Crude oil in New York closed down $2.69 to $124.55 a barrel this afternoon on concerns that slowing economic growth will further weigh on demand.

Oil jumped $4.58 a barrel, or 3.8%, to $126.77 on Wednesday on the Energy Department's report of a surprising decline in gasoline supplies and Israeli Prime Minister Ehud Olmert's decision not to run for re-election in September.

One bright spot today: Washington Mutual (WM, news, msgs) shares jumped 12.5% to $5.33 after a British hedge fund disclosed a 6% stake in the company. Toscafund Asset Management, which has ties to Dubai, now owns 105 million WaMu shares.

Energy prices -- New York close

	Thur.	Wed.	Chg.	Month chg.	YTD chg.
Crude oil (NYMEX) (per barrel)	$124.08	$126.77	-$2.69	-11.37%	29.28%
Heating oil (per gallon)	$3.4387	$3.5203	-$0.0816	-11.89%	29.79%
Natural gas (per million BTU)	$9.1190	$9.2480	-$0.1290	-31.71%	21.86%
Unleaded gasoline (per gallon)	$3.0480	$3.1351	-$0.0871	-12.95%	22.37%

The Dow extracts a small gain from July

Today's sell-off came after the blue chips gained a combined 451 points on Tuesday and Wednesday.

But it's been a weird, difficult week. The Dow lost 239 points on Monday, gained 266 points on Tuesday and 186 points on Wednesday. The net of all that volatility: The Dow is up 7 points so far this week. The S&P 500 is up 10 points, and the Nasdaq is up 15 points.

There is some good news, however. The Dow did finish July with a 0.3% gain, after big losses in May and June. The Dow has fallen in five of seven months this year.

• Video: Has the market bottomed?

The S&P 500 ended down 1% for the month, while the Nasdaq finished July up 1.4%. The gains were small, yet were a vast improvement over June -- when the Dow fell more than 10% and the S&P 500 and Nasdaq were off more than 9%.

For the year, the Dow is down 14.2%, the S&P 500 is off 13.7%, and the Nasdaq has shed 12.3%.

The market's July performance overall was an improvement over the middle of the month, when the Dow was off 3.5% as the crisis over the viability of mortgage companies Fannie Mae and Freddie Mac deepened, requiring the Bush administration to propose a plan to prop up the two companies.

So, what else happened? Here are the two most important developments:

• Crude oil. Yes, America, crude oil fell 11.4% for the month, and there's starting to be some relief for motorists. AAA's daily Fuel Gauge report put the average retail price of gasoline at $3.909 a gallon today. That's down about 5% from $4.114, the survey's high result on July 17. The oil price break slammed energy stocks. Chevron was the worst performer of the 30 Dow stocks, down 14.7% for the month. ExxonMobil was off 8.7%. Chevron reports second-quarter earnings on Friday.

• Banking and financial stocks. Many analysts believe a bottom was hit on July 15. The Standard & Poor's Banking Index ($BIX.X) was up 9.3% for the month. But it was up 52% between its July 15 low and today. Bank of America (BAC, news, msgs) was the top performer of the 30 Dow stocks for the month, up nearly 38%. Bank of America was followed by JPMorgan Chase (JPM, news, msgs), up 18.4% in July, and Citigroup (C, news, msgs), 11.5%. Sounds good, doesn't it? Not quite. Bank of America is still down 20.3% for the year. JPMorgan is off 6.9%, and Citigroup is down 36.5%.

Where the major indexes stand

	Thursday	July chg.	Ytd chg.	Chg. From '07 peak
Dow Jones Industrial Average	11,378.02	0.25%	-14.22%	-19.67%
S&P 500 Index	1,267.38	-0.99%	-13.69%	-19.03%
S&P 100 Index	583.91	0.49%	-14.84%	-19.99%
Nasdaq Composite Index	2,325.55	1.42%	-12.32%	-18.66%
Nasdaq-100 Index	1,849.15	0.66%	-12.24%	-17.41%
S&P Midcap 400 Index	803.01	-1.95%	-6.43%	-12.45%
Russell 2000 Index	714.52	3.60%	-6.72%	-16.51%
Dow Jones Utilities Average	484.88	-6.91%	-8.95%	-12.28%
Dow Jones Transportation Average*	5,071.91	2.50%	10.97%	-7.67%
Nikkei 225 Index (Japan)	13,376.81	-0.78%	-12.61%	-23.38%
FTSE 100 Index (Britain)	5,411.90	-3.80%	-16.18%	-19.59%
Dax Index (Germany)	6,479.56	0.95%	-19.68%	-19.42%

* Dow Jones Transports peak close was on June 5, 2008.

Rising oil is good -- and bad -- for Exxon

Exxon said it earned $11.68 billion, or $2.22 per share, a 14% increase from the $10.26 billion, or $1.83 per share, a year ago.

But, excluding one-time items, ExxonMobil earned $2.27 per share for the quarter, missing analysts' expectations of $2.52. So, the stock sold off.

The net profit topped Exxon's own previous record for quarterly profit by a U.S. company: $11.66 billion, set in the fourth quarter of 2007.

The recent surge in oil prices has been both good and bad for Exxon since it both produces and refines oil. But like other oil companies, Exxon is having trouble keeping production up: It pumped just 3.8 million barrels a day in the quarter, the lowest daily average in three years. Meanwhile, as the price of the crude oil it uses to make gasoline and other fuels rose, refining profit fell 54% to $1.56 billion.

Analysts were less than thrilled about Exxon's results. "It was a disappointment," Macquarie Research analyst Jason Gammel told CNBC, adding that the miss was in the exploration and production part of ExxonMobil's business. ExxonMobil spent $7 billion on exploration in the quarter, a 38% increase from the same quarter a year ago.

"Exxon was hurt this quarter by sharp declines in production in most regions. The comparison versus the second quarter last year for crude oil and liquids was down in every region around the globe," Gene Pisasale, money manager at PNC Capital Advisors, told Reuters.

Exxon is "spending $25 billion a year, and they aren't even breaking even now in terms of production growth," Pisasale said.

Elan, Biogen Idec shares tumble on Tysabri problems

After the close, shares of pharmaceutical companies Elan (ELN, news, msgs) and Biogen Idec (BIIB, news, msgs) slumped badly after disclosing that two patients using the companies' drug Tysabri for multiple sclerosis had developed a rare and sometimes deadly brain infection.

Elan was down 42% to $11.65 in after-hours trading. The stock had closed up 2.1% to $20.05 in regular trading. Biogen Idec was off 20.9% to $55.21. It had closed at $69.76, down 2.1%, in regular trading.

Both patients are in Europe and still alive, the companies said in a Securities and Exchange Commission filing.

The two cases of the infection, called progressive multifocal leukoencephelopathy, or PML, are the first for Tysabri since it was reintroduced in 2006 under rules meant to monitor its risks. The drug was withdrawn in 2005 after three patients in clinical trials developed the infection, which is rarely seen in multiple sclerosis.

Uncertainties over Tysabri's risks are a big reason that large pharmaceutical companies wouldn't make a bid for Biogen in an auction last fall, the company has said.

GDP shows lower-than-expected growth

The economy grew at a 1.9% annual rate in the second quarter, the Commerce Department said today in its revised report on gross domestic product. Economists had expected GDP to have risen 2.4% last quarter.

The economy got a boost from the $78 billion in tax rebate checks that went out during the quarter, but that isn't expected to last long, one expert said.

"As the stimulus spending wears off, with the backdrop of a weak labor market, consumer spending will take a leg down," John Ryding, chief economist at RDQ Economics, told Bloomberg News. "That's when you might get a conventional GDP recession."

GDP grew at a revised 0.9% pace in the first quarter, falling from a previous reading of 1% growth.

Separately, initial jobless claims rose by 44,000 last week to a level of 448,000, the Labor Department reported this morning. That was the highest level in five years.

There was one bit of uplifting economic news this morning, though. The Chicago Purchasing Managers Index rose to a reading of 50.8 in July, up from a reading of 49.6 in June. Readings above 50 indicate expansion.

Disney's caution hits shares

Shares of media giant and Dow component Walt Disney fell 4.2% to $30.35 today even though the company late Wednesday reported better-than-expected earnings in its fiscal third quarter.

The problem was its cautious outlook about its fourth-quarter prospects, particularly about the advertising market.

Disney earned $1.28 billion, up from $1.18 billion in the same quarter a year ago. Earnings from continuing operations were 66 cents per share, topping Wall Street's estimate by a penny.

Revenue at the company's theme parks division rose 5% to $3.04 billion, while overall revenue inched up 2% to $9.24 billion as foreign tourists took advantage of the weak dollar.

Growth at Disney's cable sports channel, ESPN, also helped offset weakness in its studio entertainment division. The cable operations saw a 12% gain in the quarter, while revenue at its studios unit fell 19%.

GM reportedly looking to sell Hummer

General Motors (GM, news, msgs) is talking with Indian automaker Mahindra & Mahindra to sell its Hummer brand, Reuters reported this morning.

GM is also talking with a Russian automaker and a Chinese automaker about a deal for the business, Reuters said.

GM, like rivals Ford Motor (F, news, msgs) and Chrysler, has been slammed by the soaring price of oil and gasoline, as consumers shift away from big money-making sport-utility vehicles to more fuel-efficient cars.

General Motors recently announced further restructuring plans, including efforts to sell $4 billion in assets. The Wall Street Journal reported yesterday that GM will cut 15% of its salaried U.S. workforce by November.

GM shares were down 2.9% to $11.07 today.

Bristol-Myers bids for ImClone

Bristol-Myers (BMY, news, msgs) this morning offered $4.5 billion in cash, or $60 per share, for Erbitux marketing partner ImClone (IMCL, news, msgs).

Shares of ImClone soared 37.7% to $63.93 today; Bristol-Myers was down 1.8%, at $21.12.

Bristol-Myers, which already owns 17% of ImClone, made the offer in a letter today to Carl Icahn, the billionaire investor and ImClone's chairman. Erbitux had sales of $1.3 billion last year.

ImClone was at the center of the Martha Stewart stock-trading scandal in the early part of the decade; Stewart was ultimately found guilty of obstruction of justice and lying to investigators about the timing of her ImClone stock sale.

Company founder Sam Waksal was also jailed in the scandal; he will reportedly be released in the next few weeks.

Earlier this month, Swiss drug company Roche, which earlier this month offered $43.7 billion for the stake in Genentech (DNA, news, msgs) it doesn't already own.

Starbucks' bitter results

Coffee retail giant Starbucks (SBUX, news, msgs) late Wednesday reported an unexpected fiscal-third-quarter loss.

Starbucks said it lost $6.7 million, or a penny per share, down from profit of $158.3 million, or 21 cents per share, last year. Excluding charges, Starbucks said it earned 16 cents per share, down slightly from the consensus estimate of 18 cents a share. Revenue in the quarter rose 9% to $2.57 billion.

Starbucks has curtailed expansion plans and is closing slow-growing stores aggressively, with the result that total stores open will be significantly reduced. The coffee company will also cut 1,000 office jobs.

Up as much as 3.3% early in the day, the stock closed up 0.1% to $14.69.

More big earnings reports

Motorola (MOT, news, msgs) reported a profit of $4 million in the second quarter, up from a loss of $28 million in the same period a year ago. On a per-share basis, the company broke even. Excluding costs related to previously announced job cuts, Motorola earned 2 cents per share, better than analysts' expectations of a 3-cent-per-share loss.

Revenue also beat expectations: Sales fell 7.4% to $8.08 billion, better than the $7.72 billion consensus estimate.

Motorola shares rose 12.5% to $8.64.

Tyco International (TYC, news, msgs) earned $476 million, or 98 cents per share, in its fiscal third quarter -- up from a loss of $3.55 billion, or $7.18 per share, a year ago, when it was hit by spin-off charges.

Excluding items, Tyco said it earned 88 cents per share, topping Wall Street's estimate of 67 cents. Revenue also beat the Street estimate of $5.15 billion, up 11% to $5.22 billion. Tyco, which makes products ranging from security and fire systems to valves and pipes, also boosted its full-year profit forecast to between $2.97 and $2.99, up from $2.65 to $2.75.

Shares were up 4.8% to $44.56 on the day.

International Paper (IP, news, msgs) reported a second-quarter profit of $227 million, or 54 cents per share, up from $190 million, or 44 cents per share, last year. Results topped analysts' estimates of 50 cents a share.

The stock was up 14% to $27.72 on the day.

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

	Thur.	Wed.	Chg.	Month chg.	YTD chg.
Treasurys
13-week Treasury bill	1.630%	1.670%	-0.040	-4.40%	-48.09%
5-year Treasury note yield	3.261%	3.375%	-0.114	-2.39%	-5.62%
10-year Treasury note yield	3.968%	4.048%	-0.080	-0.28%	-1.66%
30-year Treasury bond yield	4.595%	4.638%	-0.043	1.41%	3.05%
Currencies
U.S. Dollar Index	73.420	73.510	-0.090	0.85%	-4.27%
British pound in dollars	$1.9829	$1.9829	0.0000	-0.52%	-0.32%
Dollar in British pounds	£0.5043	£0.5043	0.0000	0.52%	0.32%
Euro in dollars	$1.5601	$1.5586	0.0015	-0.95%	6.74%
Dollar in euros	€ 0.6410	€ 0.6416	-0.0006	0.96%	-6.31%
Dollar in yen	107.88	108.04	-0.16	1.59%	-3.55%
Canadian dollar in U.S. dollars	$0.977	$0.978	-$0.0004	-0.25%	-1.56%
U.S. dollar in Canadian dollars	$1.023	$1.023	$0.0004	0.20%	1.52%
Commodities
Gold	$922.70	$912.30	$10.40	-0.60%	10.11%
Copper	$3.6615	$3.6460	$0.02	-5.69%	20.40%
Silver	$17.7900	$17.4650	$0.32	1.60%	19.24%
Corn	$5.8750	$6.0150	-$0.14	-18.94%	28.98%
Crude oil (NYMEX) (per barrel)	$124.08	$126.77	-$2.69	-11.37%	29.28%