Stocks slid Friday after the government said that the economy lost 2.6 million jobs in 2008, the worst year for job losses since World War II, and national unemployment hit the highest level in 16 years.
The jobs picture is likely to get worse before it gets better. Among the keys to an early end to the recession are rapid deployment of stimulus money from the incoming Obama administration and improved psychology about the economy.
The stimulus is important because the recession is worsening with no other catalysts to jumpstart the economy, said Philippa Dunne of the Liscio Report, an economic newsletter. As important is maintaining the optimism that the repairs are being made. If that falters, she said, 2009 will become difficult both for the economy and investors.
At Friday's close, the Dow Jones industrials were down 143 points, or 1.6%, to 8,599. The Standard & Poor's 500 Index was off 19 points, or 2.1%, to 890, and the Nasdaq Composite Index was down 45 points, or 2.8%, to 1,572.
For the week, the Dow was down 4.8%, with the S&P off 4.5% and the Nasdaq down 3.7%. After the first six days of trading in 2009, the Dow is down 2%, the S&P 500 has slipped 1.4% and the Nasdaq has dropped 0.3%.
The government said nonfarm payrolls fell by 524,000 and job losses in October and November were larger than originally reported. The 2.6 million jobs lost last year were the most since 1945, when the economy dropped 2.75 million jobs.
The national unemployment rate jumped to 7.2% from 6.8% in November and 5% in April. More than 11 million Americans are now unemployed.
For many analysts, the report was a signal that the recession is real and likely to linger. One trader told CNBC he saw the unemployment rate hitting 10% this year.
The stock market's response, however, was relatively contained, probably because a terrible jobs report had been expected. Many companies have been announcing big layoffs since New Year's, and the credit crisis and the collapse of such well-known institutions as Bear Stearns, Lehman Bros. and Washington Mutual guaranteed a gloomy picture.
The jobs report will force many analysts to continue cutting earnings estimates just as the fourth-quarter earnings season is starting.
Thomson Reuters is projecting that fourth-quarter earnings for S&P 500 companies will drop 15.2% from a year ago. That's a startling decline from July when, Thomson said, analysts were projecting a 59.3% earnings increase.
The first Dow company to report will be Alcoa (AA, news, msgs) after Monday's close. The stock fell nearly 11% this week after the the company announced 13,500 job cuts and a substantial cutback in capital expenditures because of weak markets.
Chip giant Intel (INTC, news, msgs) reports after Thursday's close. It cut its fourth-quarter revenue estimate to $8.2 billion, down 23% from a year ago. The shares fell 6.9% for the week.
| Month | Job losses | Month | Job losses |
|---|---|---|---|
December 2008 (p) | -524,000 | June 2008 | -100,000 |
November 2008 (p) | -584,000 | May 2008 | -47,000 |
October 2008 | -423,000 | April 2008 | -67,000 |
September 2008 | -403,000 | March 2008 | -88,000 |
August 2008 | -127,000 | February 2008 | -83,000 |
July 2008 | -67,000 | January 2008 | -76,000 |
Total 2008 U.S. job losses | -2,589,000 | ||
p -- preliminary |
Worst quarter for job losses
Economists had expected a loss of 525,000 jobs last month, with some whispering numbers as high as 700,000. The economy shed an estimated 584,000 jobs in November, up from an original estimate of 533,000.The last quarter was especially brutal, with 1.53 million jobs lost -- the largest job losses in any quarter since World War II. If you look at the quarter's job losses in percentage terms, it was the seventh-worst since 1945.
"Consumers are now going to get more and more scared at the prospect of losing their (jobs)," Nariman Behravesh, chief economist at IHS Global Insight, told Bloomberg News.
Behravesh said that President-elect Obama's proposed fiscal stimulus "needs to be big, needs to be bold, needs to be swift. If they can do something quickly we can limit the hemorrhage by midyear."
On Thursday, Obama said that his plan, which could cost more than $775 billion, will add to the nation's deficit but is necessary to prevent the recession from lasting for years. This morning he called the December report "a stark reminder" of why his stimulus package needs to be pushed forward quickly.
The last time the economy saw a 12-month stretch of job losses was the period from June 2001 to May 2002.
| Close for week | Wk. ago close | % chg. | 2009 YTD. chg. | |
|---|---|---|---|---|
| Dow Jones industrials | 8,599.18 | 9,034.69 | -4.82% | -2.02% |
| S&P 500 | 890.35 | 931.80 | -4.45% | -1.43% |
| Nasdaq Composite | 1,571.59 | 1,632.21 | -3.71% | -0.34% |
| Russell 2000 | 481.30 | 505.84 | -4.85% | -3.63% |
| Crude oil per barrel | $40.83 | $46.34 | -11.89% | -8.45% |
| 10-yr. Treasury yield | 2.41% | 2.42% | -0.01% | 7.26% |
| Gold per troy ounce | $855.00 | $879.50 | -2.79% | -3.31% |
Citigroup may sell Smith Barney; Robert Rubin leaves
The market wasn't helped by news that Robert Rubin is resigning as a senior counselor at Citigroup (C, news, msgs). Rubin, who had been secretary of the Treasury in the Clinton administration, had been sharply criticized over his role in the financial turmoil at the nation's biggest bank by assets.At the same time, The Wall Street Journal was reporting that Citigroup was in talks to sell its Smith Barney brokerage business to a joint venture it would own with Morgan Stanley (MS, news, msgs).
Citigroup was off 5.7% to $6.75, the worst performer among the 30 Dow stocks. Morgan Stanley was up 1.3% to $19.06.
On Thursday, Citigroup agreed to support legislation to allow bankruptcy judges to reduce mortgage debt for high-risk borrowers.
Democrats have been pushing "mortgage cramdowns" -- which allow bankruptcy judges to reduce the size of a mortgage -- since the mortgage-market meltdown began and want the legislation included in Obama's economic stimulus plan.
The Mortgage Bankers Association and the American Bankers Association oppose the idea.
Energy is the market's weak link
Only three of the 30 Dow stocks were higher, led by Wal-Mart Stores (WMT, news, msgs), up 0.4% after Thursday's 7.5% loss.In addition, only 47 S&P 500 stocks and 9 stocks in the Nasdaq-100 Index ($NDX.X) showed gains. The index, which tracks the largest Nasdaq stocks, was down 30 points, or 2.4%, to 1,223.
No sector of the market was immune to the downdraft, but energy shares were the biggest losers because crude oil slumped again, falling 2.1% to $40.83. Crude fell 11.9% on the week.
The Select Sector SPDR-Energy (XLE, news, msgs) exchange-traded fund was down 3.4% to $48.64.
Chevron (CVX, news, msgs), which warned that fourth-quarter earnings would be significantly lower from the third quarter, was off 1.9% to $72.82. Oil services giant Schlumberger (SLB, news, msgs) was off 6.2% to $43. Investors now fear that the 72% decline in oil prices from last summer's highs will cause energy companies to cancel new drilling projects.
Pushing the Nasdaq lower were losses in such key stocks as Apple (AAPL, news, msgs), down 2.3% to $90.58; Microsoft (MSFT, news, msgs), down 3% to $19.52; Cisco Systems (CSCO, news, msgs), down 4.8% to $16.70; and Google (GOOG, news, msgs), down 3.1% to $315.07. (Microsoft is the publisher of MSN Money.)
Yahoo (YHOO, news, msgs) shares rose 0.5% to $13.13 on reports it has narrowed its search for a new CEO to succeed Jerry Yang to three candidates.
Boeing (BA, news, msgs) shares fell 0.8% to $44.45.The company said it will cut its Commercial Airplane workforce in 2009 by about 4,500 people, mostly in Washington State. The reduction will be made largely through layoffs, though the figure also includes attrition.
Best Buy sales fall; KB Home posts narrower loss
Electronics retailer Best Buy (BBY, news, msgs) said Friday that December sales at stores open at least one year fell 6.5% as consumers stayed home during the holidays. U.S. same-store sales slumped 6.8%.Best Buy also said 2009 earnings would be between $2.50 and $2.70 per share, a narrower forecast than its previous guidance of between $2.30 and $2.90 per share.
Best Buy shares fell 5.3% to $28.08.
The slumping housing market isn't going to get better this year, according to homebuilder KB Home (KBH, news, msgs).
The company posted on Friday a fourth-quarter net loss of $3.96 per share, an improvement from the loss of $9.99 per share in the same period a year ago, but revenue fell 55% to $919 million from $2.07 billion.
"Housing market and general economic conditions in 2009 are expected to remain difficult or possibly worsen as the timing of any meaningful recovery for the home-building industry remains uncertain," Jeffrey Mezger, KB Home's chief executive, said in a press release.
Shares of KB Home were down 2.8% to $14.17.
| Fri. | Thur. | Chg. | Month chg. | YTD chg. | |
|---|---|---|---|---|---|
| Crude oil (NYMEX) (per barrel) | $40.83 | $41.70 | -$0.87 | -8.45% | -8.45% |
| Heating oil (per gallon) | $1.4877 | $1.5196 | -$0.0319 | 5.83% | 5.83% |
| Natural gas (per million BTU) | $5.5160 | $5.5830 | -$0.0670 | -1.89% | -1.89% |
| Unleaded gasoline (per gallon) | $1.1112 | $1.0882 | $0.0230 | 10.22% | 10.22% |
Slumping oil prices slam Chevron
Chevron's earnings warning did not give specific earnings estimates, but analysts are looking for $1.89 per share.Because market conditions had changed significantly, Chevron delayed the unveiling of 2009 capital spending plans until later this month from December. It made $15.8 billion in capital and exploratory expenditures in the first nine months of 2008, out of $22.9 billion budgeted in December 2007.
Brian Youngberg, senior energy and utilities analyst at Edward Jones, said he would be looking out for possible cuts to 2009 spending plans, even though the oil majors had so far avoided any drastic curtailing of projects.
Exxon Mobil (XOM, news, msgs) CEO Rex Tillerson said on Thursday that the U.S. oil industry leader was sticking with its $125 billion capital spending budget over the next five years, despite all the market turmoil.
In related news, Russian gas producer Gazprom (OGZPY, news, msgs) is prepared to begin supplying gas deliveries to Europe again. Earlier this week, Russia had turned off pipelines that ran through Ukraine in the wake of a dispute over unexplained losses of the commodity.
The dispute had left most of Europe with severely disrupted gas supplies.
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Lennar shares battered
Shares of Lennar (LEN, news, msgs), the third-largest U.S. builder by market value, fell as much as 28% after Barry Minkow’s Fraud Discovery Institute alleged that the company operates joint ventures were "like a Ponzi scheme." Lennar denied the allegations.The stock finished down 18.9% to $9.15.
Minkow posted his accusations Friday on a Web site called lenn-ron.com. The company has failed to disclose material transactions, Minkow said on the site. He said he has no financial interest in the stock declining.
"We are very disappointed to see our stock react to allegations made by litigants who are trying to get money from us," Lennar CEO Stuart Miller told Bloomberg News. "Once the market feels comfortable with our statement, our stock will recover."
Andrew Rosenbaum contributed to this report.
| Thur. | Wed. | Chg. | Month chg. | YTD chg. | |
|---|---|---|---|---|---|
| Treasurys | |||||
| 13-week Treasury bill | 0.065% | 0.080% | -0.015 | -43.48% | -43.48% |
| 5-year Treasury note yield | 1.525% | 1.598% | -0.073 | -1.68% | -1.68% |
| 10-year Treasury note yield | 2.407% | 2.445% | -0.038 | 7.26% | 7.26% |
| 30-year Treasury bond yield | 3.055% | 3.045% | 0.010 | 13.53% | 13.53% |
| Currencies | |||||
| U.S. Dollar Index | 83.455 | 82.335 | 1.120 | 1.59% | 1.59% |
| British pound in dollars | $1.5244 | $1.5237 | 0.0007 | 3.46% | 3.46% |
| Dollar in British pounds | £0.6560 | £0.6563 | -0.0003 | -3.34% | -3.34% |
| Euro in dollars | $1.3439 | $1.3710 | -0.0271 | -4.07% | -4.07% |
| Dollar in euros | € 0.7441 | € 0.7294 | 0.0147 | 4.24% | 4.24% |
| Dollar in yen | 90.18 | 91.17 | -0.99 | -0.52% | -0.52% |
| Canadian dollar in U.S. dollars | $0.840 | $0.848 | -$0.0076 | 2.71% | 2.71% |
| U.S. dollar in Canadian dollars | $1.191 | $1.180 | $0.0115 | -2.64% | -2.64% |
| Commodities | |||||
| Gold | $855.00 | $854.50 | $0.50 | -3.31% | -3.31% |
| Copper | $1.5595 | $1.4790 | $0.08 | 10.60% | 10.60% |
| Silver | $11.3200 | $11.0970 | $0.22 | 0.22% | 0.22% |
| Corn | $4.1075 | $4.0675 | $0.04 | 0.92% | 0.92% |
| Crude oil (NYMEX) (per barrel) | $40.83 | $41.70 | -$0.87 | -8.45% | -8.45% |
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