Market Dispatches

Market Dispatches2/2/2009 7:00 PM ET

Dow falls 64; Macy's job cuts weigh on markets

The department store chain slashes its dividend and 4% of its work force. General Electric shares hit their lowest level in 13 years; Bank of America falls nearly 9%. GM and Chrysler may offer more buyouts to reduce labor costs. Intel, Microsoft and Amazon boost techs.

By Charley Blaine and Elizabeth Strott

For a while this afternoon, it looked like Macy's (M, news, msgs) was going to sink the stock market.

Instead, buying came into the market in the last 65 minutes of trading and turned what looked like an ugly day into something almost bearable.

The Dow Jones industrials, down 133 points at 2:55 p.m., finished with a loss of 64 points to 7,937. The loss dropped the blue-chip index below its January low of 7,949 on Jan. 20, but the index is still up 5.1% from its Nov. 20 closing low.

The Standard & Poor's 500 Index finished down a half-point to 825. The Nasdaq Composite Index moved up 18 points, or 1.2%, to 1,494.

Macy's announcement that it will cut 7,000 jobs and chop its dividend to 5 cents a share from 13.25 cents initially dropped the stock 16.2%, but it recovered to a 4% loss at $8.59.

Macy's announcement hit retailing shares generally. Nordstrom (JWN, news, msgs) fell 1.3% to $12.53. Saks (SKS, news, msgs) fell 5.2% to $2.39.

Tech shares held their own, thanks in part to strength in Dow components Intel (INTC, news, msgs) and Microsoft (MSFT, news, msgs). Intel was up 5.7% to $13.63 and was the top performer among the 30 Dow stocks. Microsoft, the publisher of MSN Money, was up 4.3% to $17.83. (AMZN, news, msgs) was up 4% to $61.15.

Macy's said it was cutting discretionary spending as part of its initiatives to boost its profitability. The company expects its cost cuts to reduce its previously planned expenses by about $400 million per year starting in 2010, and $250 million in part of 2009.

The company said it expected to earn 40 cents to 55 cents a share, excluding restructuring costs, for this fiscal year. Same-store sales are expected to decline between 6% and 8%.

The Macy's news underscores the nasty nature of the recession that is now more than a year old. Last week, companies around the world announced more than 100,000 layoffs, and new-home sales in December dropped to an annualized rate of 331,000, their lowest level ever.

And today General Motors (GM, news, msgs) and privately held Chrysler Group said they would be offering buyouts to workers to leave the companies. Chrysler is offering up to $75,000 and a voucher worth $25,000. GM will offer $20,000 and a $25,000 car purchase voucher.

And investment house Morgan Stanley (MS, news, msgs) is expected to lay off 1,500 to 1,800 workers, 3% to 4% of its total work force, The Wall Street Journal said today. That's on top of 7,000 job cuts in 2008.

The malaise translated into the worst January ever for the Dow and the S&P 500 and the third-worst January for the Nasdaq. The Dow dropped 8.8% for the month, the S&P fell 8.6%, and the Nasdaq slumped 9.3%.

General Electric (GE, news, msgs) Hondwas down 4.2% to $11.62, its lowest level since December 1995 (adjusted for splits). said the weakness was due to more concerns about GE's capital arm, saying it was "exposed to shaky commercial and consumer loans that could drive further losses."

Bank of America (BAC, news, msgs) was the laggard among the Dow stocks, down 8.8% to $6. Nineteen Dow stocks were lower, along with 265 S&P 500 stocks.

Commodities were mostly lower as the dollar rallied against the British pound and the euro. Crude oil fell 3.8% to $40.08 a barrel in New York on continuing worries that the recession would clip domestic energy demand.

The dollar has risen nearly 36% against the pound and 14.4% against the euro since the end of 2007.

Energy prices -- New York close
 Mon.Fri.Chg.Month chg.YTD chg.
Crude oil (NYMEX) (per barrel)$40.08$41.68-$1.60-3.84%-10.13%
Heating oil (per gallon)$1.3424$1.4340-$0.0916-6.39%-4.50%
Natural gas (per million BTU)$4.5570$4.4170$0.14003.17%-18.94%
Unleaded gasoline (per gallon)$1.1492$1.2689-$0.1197-9.43%13.99%

Manufacturing index, while higher, is still weak

The Institute of Supply Management's manufacturing index inched up to a reading of 35.6 in January from a reading of 32.9 in December -- better than the reading of 32.5 economists had expected.

Still, January's reading marks the 12th straight month of contraction in the manufacturing industry -- indicated by readings below 50.

Economists expect the ISM service-sector index report, due Wednesday, to fall to a reading of 39 in January from a reading of 40.1 in December.

The National Association of Realtors will release its December report on pending home sales on Tuesday. The report is expected to be unchanged from the 4% drop seen in November.

Get ready for some ugly car sales numbers

Automakers will be reporting January sales on Tuesday, and the results may cause the debate over Detroit's future to erupt again. General Motors is expected to show a 39% drop in January sales, with Ford Motor (F, news, msgs) posting a 33% decline. Chrysler is expected to post a whopping 49% drop in January sales.

Analysts expect Toyota Motor (TM, news, msgs) to report a 30% drop in sales last month. Toyota lowered its global sales forecast for its fiscal year ending in March to 7.4 million units, down from a previous forecast of 7.54 million units, the Mainichi Shimbun reported this morning.

"Until we see stabilization in the housing market and job market, we're not going to see a real rebound in car sales," auto analyst Jesse Toprak told Bloomberg News.

GM, meanwhile, has been working to submit a viable restructuring plan to the federal government by Feb. 17, but the company has hit a billion-dollar bump in the road.

GM could face a $7 billion income-tax bill, The Wall Street Journal reported Sunday, in connection with the automaker's plan to give most of its outstanding shares to debt holders, the United Auto Workers union and the federal government.

The tax was intended to limit companies' ability to use distressed-asset transactions as a tax loophole.

In December, the government agreed to give GM $13.4 billion in emergency loans, $9.4 billion of which GM has already received.

Honda Motor (HMC, news, msgs) said it is cutting salaries of managers by 5% from this month as it seeks to reduce costs. Honda already cut salaries of board members by 10% in January, it said in a faxed statement today.

The pay cut, the first initiated as a result of the company’s performance, affects 4,800 managers and will last at least through May, the company said. On Friday, Honda cut its full-year earnings forecast by 57% to 80 billion yen ($891 million).

Honda shares rose 0.3% to $22.72 in New York.

January jobs report looms

The big report of the week is due Friday: the January payrolls and unemployment report.

Economists expect the Labor Department to report that the economy shed 530,000 jobs last month, the 13th monthly decline. The unemployment rate is expected to have jumped to 7.5% last month, the highest level in 16 years.

The economy lost 2.6 million jobs in 2008, the worst year for job losses since 1945. The population in the U.S. today is much larger than it was after World War II, so the comparison of total job losses may exaggerate the scope of recent losses -- but even when population growth is taken into account, last year's job losses are the worst since 1975.

And the greatest losses have come in the past few months. The economy shed 524,000 jobs in December and 584,000 jobs in November.

"The door has closed on 2008's abysmal employment record, but 2009 is starting off the year looking just as bad, if not worse," Meny Grauman, an economist for CIBC World Markets, wrote in a note to clients.

Another expert agreed.

"The labor market will look terrible for a while," Sung Won Sohn, a professor of economics and finance at California State University Channel Islands, told Bloomberg News.

"If the downward momentum is not arrested, the consequences could be disastrous. Policymakers need to act quickly."

Glaxo to cut jobs?

Pharmaceutical maker GlaxoSmithKline (GSK, news, msgs) is likely the next big company to announce massive layoffs.

The U.K.'s Sunday Telegraph reported that Glaxo will cut 6,000 jobs, or 6% of its global work force, as part of a previously announced restructuring plan. Last year, Glaxo said it would cut 2,000 jobs.

The job cuts will be announced on Thursday, when it posts its fourth-quarter results, the report said.

Glaxo shares were down 0.4% to $35.11.

Speaking of quarterly results, earnings reports continue to cause worry for investors, and S&P 500 companies' fourth-quarter results are on track to decline 35.2% from the same quarter in 2007.

"It's shaping up to be the worst quarter for earnings since we began tracking the results in 1998," said John Butters, senior research analyst at Thomson Reuters.

Short hits from the markets -- New York close
 Mon.Fri.Chg.Month chg.YTD chg.
13-week Treasury bill0.245%0.220%0.02511.36%113.04%
5-year Treasury note yield1.748%1.873%-0.125-6.67%12.70%
10-year Treasury note yield2.719%2.844%-0.125-4.40%21.17%
30-year Treasury bond yield3.470%3.603%-0.133-3.69%28.95%
U.S. Dollar Index86.48086.4600.0200.02%5.27%
British pound in dollars$1.4282$1.4449-0.0167-1.61%-3.07%
Dollar in British pounds £0.7002£0.69210.00811.64%3.17%
Euro in dollars$1.2853$1.27550.00980.30%-8.25%
Dollar in euros€ 0.7780€ 0.7840-0.0060-0.29%8.99%
Dollar in yen 89.5089.66-0.16-0.41%-1.27%
Canadian dollar in U.S. dollars$0.805$0.815-$0.0102-1.13%-1.57%
U.S. dollar in Canadian dollars$1.243$1.227$0.01651.14%1.60%
Crude oil (NYMEX) (per barrel)$40.08$41.68-$1.60-10.13%-10.13%

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