Dow slumps 245 as economic woes batter stocks

By Charley Blaine and Elizabeth Strott

In what can only be called an economic smackdown, stocks suffered their worst losses in five weeks today.

The dive was set off by earnings warnings from Intel (INTC, news, msgs) and Time Warner (TWX, news, msgs), an announcement of huge job cuts at aluminum giant Alcoa (AA, news, msgs) and new signs of a rapidly weakening jobs picture.

At the same time, falling demand and a report showing much larger domestic oil inventories sent crude oil plunging more than 12% to $42.63 a barrel in New York, wiping out all of its gains for the year.

At the close, the Dow Jones industrials were down 245 points, 2.7%, to 8,770. The Nasdaq Composite Index had shed 53 points, 3.2%, to 1,599, and the Standard & Poor's 500 Index had lost 28 points, 3%, to 907. Futures trading suggests stocks will open flat on Thursday.

The losses were the worst for the major indexes since Dec. 1, when the Dow fell 680 points. The Dow is now down slightly on the year. The S&P 500 remains up 0.4%, and the Nasdaq is up 1.4%.

The suddenness of today's sell-off came because traders realized it was impossible not to forecast in a recession, Tim Ghriskey, chief investment officer of Solaris Asset Management, told Reuters. "When reality hits, it can shock people."

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Stocks in India were rocked when the chairman of one of the country's largest information technology companies admitted he concocted key financial results including a fictitious cash balance of more than $1 billion. Mumbai's Sensex Index fell 7.3%.

The oil-price plunge punished energy stocks, which had been among the strongest segments of the market this year.

Exxon Mobil (XOM, news, msgs), down 2.6% to $78.25, and Chevron (CVX, news, msgs), down 4.4% to $73.96, contributed 35 points to the Dow's loss.

Financial stocks were the market's weak link, with insurance companies and regional banks among the biggest losers. Unum Group (UNM, news, msgs) was down 12.7% to $17.43, and Regions Financial (RF, news, msgs) was down 10.4% to $7.91.

Bank stocks overall weakened after Oppenheimer analyst Meredith Whitney said that they will need to raise fresh capital in 2009. She added in a note to clients that a sharp increase in credit-rating downgrades on mortgage-related securities will lead to further stresses on the companies' capital.

Only three of the 30 Dow stocks were higher on the day, with General Motors (GM, news, msgs) the leader, up 4.8% to $4.13. That was the automaker's first close above $4 since Dec. 19. The other gainers: Verizon Communications (VZ, news, msgs) up 1.3% to $31.90, and Coca-Cola (KO, news, msgs), up 0.5% to $44.93.

Only 44 S&P 500 stocks had gains today.

Volatility is alive and well

Some investors may have become complacent by the market's 20% gains since bottoming on Nov. 20. Today's selling was a big-time wake-up call that volatility has hardly disappeared.

The CBOE Options Index ($VIX.X) jumped 12.5% to 43.39, its first close above 40 since Dec. 31.

The index measures the ratio of put options to call options traded on the Chicago Board Options Exchange. A rising index is a signal of investor apprehension about financial markets.

The index didn't trade above 25 between April 2003 and January 2008 and has rarely traded above 40. In 2008, as losses deepened, the index soared, peaking at 80.86 on Nov. 20.

Intel warning slams techs

Intel said fourth-quarter revenue would fall 23% from 2007 levels because of weak demand. Intel said revenue would be $8.2 billion, short of the consensus estimate of $8.74 billion and lower than the company's previous guidance of $9 billion. Intel ships about 80% of the world's microprocessors.

Shares of Intel, a Dow component, fell 6.1% to $14.44.

The announcement also slammed shares of most semiconductor companies. Eighteen of the 19 stocks in the Philadelphia Semiconductor Index ($SOX.X) were down today; the index was down 5% to 223.

That stopped a nascent tech rally in its tracks. Only 15 Nasdaq-100 ($NDX.X) stocks showed gains today. Microsoft (MSFT, news, msgs) was off 6% to $19.51. (Microsoft is the publisher of MSN Money.) Qualcomm (QCOM, news, msgs) was off 4.3% to $35.55, and Apple (AAPL, news, msgs) fell 2.2% to $91.01. Google (GOOG, news, msgs) dropped 3.6% to $322.01.

Energy prices -- New York close

	Wed.	Tues.	Chg.	Month chg.	YTD chg.
Crude oil (NYMEX) (per barrel)	$42.63	$48.58	-$5.95	-4.42%	-4.42%
Heating oil (per gallon)	$1.5431	$1.6263	-$0.0832	9.77%	9.77%
Natural gas (per million BTU)	$5.8720	$5.9830	-$0.1110	4.45%	4.45%
Unleaded gasoline (per gallon)	$1.0764	$1.1892	-$0.1128	6.76%	6.76%

Alcoa to cut jobs

Shares of Alcoa were down 10.2% today to $10.89, the worst performer of the 30 Dow stocks.

Late Tuesday, the aluminum maker said it will eliminate 13,500 jobs, or 13% of its work force, in an effort to combat the global economic slowdown. In addition, some 1,500 contract workers will be cut.

The moves will result in a fourth-quarter charge of $900 million to $950 million, or $1.13 to $1.19 a share. The company expects to report fourth-quarter earnings next week.

Alcoa earned $632 million, or 75 cents a share, in the fourth quarter of 2007.

Alcoa's measures will lower annual output by 18%. The company also projected capital expenditures would fall 50% in 2009 to $1.8 billion.

• Top Stocks blog: What Alcoa's moves really mean

A big hit to private-sector jobs

There was terrible news about unemployment this morning. ADP Employer Services' payroll survey showed a whopping loss of 693,000 jobs in December, far worse than economists had expected.

The ADP report comes just two days ahead of the government's monthly report on nonfarm payrolls, which is expected to show a loss of 500,000 jobs in the last month of 2008, wrapping up one of the worst years for job losses since the end of World War II. Friday's report is also likely to show that the unemployment rate rose to 7% from 6.7%.

The ADP report measures nonfarm private employment using payroll data representing about 24 million employees working in all 19 of the major North American industrial sectors.

A separate report from outplacement firm Challenger, Gray & Christmas showed the worst December since tracking began in 1993.

December job losses at big companies soared 275% from December 2007 to 166,348, Challenger's report said.

The financial services sector was hit the hardest in December, accounting for about one-quarter of the losses. And for all of 2008, the financial services industry announced plans to cut 260,100 jobs, almost as many as the telecommunications industry cut in 2001 and 2002 after the end of the dot-com bubble.

Russia halts gas flow to Europe

The dispute between Russia and Ukraine over a natural gas pipeline is starting to affect Europe.

The two countries blame each other for the standoff, which started on New Year's Eve when they couldn't agree on a pricing deal.

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European supplies that pass through Ukraine are slowing just as winter temperatures are starting to set in; 80% of Russian gas is shipped to Europe through Ukraine. Eastern European countries including Bulgaria, Greece, Macedonia and Serbia have reported halts in their natural gas shipments, and countries farther west, including France and Austria, have reported a big drop in Russian supplies.

Talks between Russia and Ukraine are scheduled for Thursday.

Meanwhile, crude oil slid after the Energy Department's weekly inventory report showed a much-bigger-than-expected increase in oil supplies.

Oil supplies rose by 6.7 million barrels last week. Gasoline inventories were up by 3.3 million barrels, and distillate stocks rose by 1.8 million barrels.

• Video: How low will oil go?

Time Warner warns; Monsanto profits jump

Shares of media giant Time Warner (TWX, news, msgs) fell 6.3%, to $10.29 after the company said it will record a fourth-quarter charge of $25 billion for its cable, publishing and AOL businesses. The charge will mean Time Warner will post an operating loss for the quarter. The company expects a loss for 2008 as well, down from its previous outlook for profit of $1.04 and $1.07 per share. Analysts had been looking for $1.08 per share.

On the other end of the aisle, Monsanto (MON, news, msgs) this morning posted a 54% jump in fiscal-first-quarter earnings, and shares jumped 17.7% to $86.16.

The seed-and-chemical company earned $1.6 billion, or $1 per share, in the quarter, up from $1.04 billion, or 46 cents per share, in the same period a year ago.

India's 'Enron' scandal

The chairman of India's Satyam Computer Services (SAY, news, msgs) resigned this morning after he admitted to inflating revenue and profit. Shares of the stock tanked 71%, to $2.70 and fell an additional 20% after India's stock market closed.

• Video: Catching a liar

ADR shares of Satyam (which is Sanskrit for "truth") haven't opened in the U.S. for trading.

"It's a major blow to sentiment," Gurunath Mudlapur, managing director at Atherstone Capital Market in Mumbai, told MarketWatch.com. "Market sentiment had just about started to improve after a long period of time, but with this development, the confidence is again getting shattered."

• Top Stocks blog: Could Indian outsourcing be in trouble?

Andrew Rosenbaum contributed to this report.

Short hits from the markets -- New York close

	Wed.	Tues.	Chg.	Month chg.	YTD chg.
Treasurys
13-week Treasury bill	0.100%	0.130%	-0.030	-13.04%	-13.04%
5-year Treasury note yield	1.661%	1.704%	-0.043	7.09%	7.09%
10-year Treasury note yield	2.494%	2.505%	-0.011	11.14%	11.14%
30-year Treasury bond yield	3.066%	3.069%	-0.003	13.94%	13.94%
Currencies
U.S. Dollar Index	83.115	83.720	-0.605	1.17%	1.17%
British pound in dollars	$1.5124	$1.4910	0.0214	2.65%	2.65%
Dollar in British pounds	£0.6612	£0.6707	-0.0095	-2.58%	-2.58%
Euro in dollars	$1.3657	$1.3515	0.0142	-2.51%	-2.51%
Dollar in euros	€ 0.7322	€ 0.7399	-0.0077	2.58%	2.58%
Dollar in yen	92.66	93.42	-0.76	2.22%	2.22%
Canadian dollar in U.S. dollars	$0.838	$0.845	-$0.0072	2.41%	2.41%
U.S. dollar in Canadian dollars	$1.195	$1.184	$0.0110	-2.35%	-2.35%
Commodities
Gold	$841.70	$866.00	-$24.30	-4.82%	-4.82%
Copper	$1.5115	$1.5830	-$0.07	7.20%	7.20%
Silver	$11.1050	$11.4450	-$0.34	-1.68%	-1.68%
Corn	$4.1650	$4.2750	-$0.11	2.33%	2.33%
Crude oil (NYMEX) (per barrel)	$42.63	$48.58	-$5.95	-4.42%	-4.42%