Stocks ended an ugly week with more selling that left the Dow Jones Industrial Average within 80 points of its 2002 low.
The slump, which was part of a sell-off that hit markets around the world, was mostly due to deepening concern that some of the nation's largest banks will become wards of the federal government.
There was hope that the government will offer more details next week on how the nation's financial system will be shored up, but the market's close suggested that there is extreme skepticism on the effectiveness of any plans.
The Dow, which had been down as much as 216 points in the early afternoon, closed down 100 points, or 1.3%, to 7,366.
The Standard & Poor's 500 Index was off 9 points, or 1.1%, to 770. The close for the index may actually be good news because it came near to -- but did not drop below -- its Nov. 20 low. Still, the close represented the second time in the last four months that the index finished below its October 2002 closing low of 776.76.
The Nasdaq Composite Index, whose membership includes relatively few financial institutions, finished down 2 points, 0.1%, to 1,441. It is still 9.5% above its Nov. 20 closing low and 30% above its 2002 low.
The Dow's close was its worst since Oct. 9, 2002, when the index closed at 7,286.27. That was the bottom of the bear market that came in the aftermath of the dot-com bust and the Sept. 11, 2001, terror attacks. Had the Dow closed at its low on the day -- 7,249.47 -- that would have been the worst close for the blue chips since October 1997.
For the week, the Dow was down 6.2% and is off 16.1% for the year. The S&P 500, down 6.9% for the week, is off 14.8% this year. The Nasdaq shed 6.1% for the week and has fallen 8.6% for the year.
Many investors had spent much of the day seeking safety as they come to grips with the reality of a global recession. Gold closed at $1,002.20 an ounce Friday, its first close above $1,000 since March 2008. Treasury yields dropped; the yield on the 10-year Treasury note fell to 2.77% from 2.86% on Thursday.
There was weakness across most of the stock market on Friday, in part because of weak earnings and guidance from home improvement retailer Lowe's Companies (LOW, news, msgs) and department store chain J.C. Penney (JCP, news, msgs).
At one point, the market capitalization of General Motors (GM, news, msgs) dropped below $1 billion; the stock finished at $1.77 and left GM with a market cap of $1.08 billion.
An exception to the day's gloom came from the Nasdaq-100 Index ($NDX.X), which tracks the largest Nasdaq stocks. The index finished up 5 points, or 0.4%, to 1,173.
But the real focus of the day's selling was the financial sector. The Dow's weakness was in its financial components and in General Electric (GE, news, msgs), whose financial businesses are so large that it trades like one. GE was down 6.8% to $9.38, its lowest close since May 1995.
Citigroup (C, news, msgs) was down 22.3% to $1.95 after falling as much as a third earlier in the day. Bank of America (BAC, news, msgs) was off 3.6% to $3.79; the stock had been down as much as 23%. Wells Fargo (WFC, news, msgs) was off 9.2% to $10.91; the shares had been down as much as 25%.
The problem with many of these financial institutions is this: They have billions of dollars of assets on their books that are falling in value -- such as mortgages on residences or commercial real estate. Or they have billions in so-called derivative investments that are difficult -- if not impossible -- to value. At some point, these assets will have to be adjusted to a realistic market value.
What makes the situation devilishly difficult is that these assets are sitting on the books of banks and financial institutions around the world as well. And the banks recognizes their losses on their assets, many could be effectively insolvent.
Add to that the U.S. recession, which spread around the world much more rapidly than anyone expected. Too few regulators and corporate executives understood the extent to which the global economy still depends on a healthy U.S. economy.
Much of the selling pressure was built around the idea that the Obama administration would somehow nationalize the most troubled banks. Senate Banking Committee Chairman Chris Dodd, D-Conn., said he thought some nationalization was inevitable.
Twice on Friday, however, the administration said it supports a banking system that is privately owned.
Bank of America CEO Ken Lewis said he believed there was no reason to nationalize his company. The bank has enough "capital, liquidity and earnings power to make it through this downturn on our own," Lewis said in a memo today to employees. "I am confident we will not need any further assistance in the future."
And Dick Bove, a respected banking analyst, also said nationalization made no sense.
Ahead next week: retail earnings, housing reports, Bernanke
In addition to the details on the financial rescue package that Wall Street is screaming for, next week will produce some important earnings and economic reports.- Earnings: Retailers Nordstrom (JWN, news, msgs) and Macy's (M, news, msgs) and Saks (SKS, news, msgs) report on Monday, Tuesday and Wednesday, respectively. Safeway (SWY, news, msgs) reports on Thursday.
- Economic reports: The S&P/Case-Shiller Home Price Index report for January comes out on Tuesday. The report tracks home price changes in major markets. It will be followed by existing-home sales for January on Wednesday and January new-home sales on Thursday. Watch the months' supply. The odds are that sales may rise a bit from December as banks unload foreclosed homes. Friday, the government will report on gross domestic product in the fourth quarter. The GDP report is the basic report card on the economy.
- Bernanke speaks. The Federal Reserve chairman will give his annual monetary policy report to Congress on Tuesday. His appearance will be closely watched to see if his outlook has changed even from this week when he said he thought the economy might turn around this year or early in 2010. The Fed boss offered a personal note on the recession's reach in a National Press Club speech this week. The Dillon, S.C., home his family occupied when Bernanke was growing up was recently sold in a foreclosure sale. The Bernanke family had sold the property more than 10 years ago.
A lot of losses on the day
Friday's selling was fairly heavy and broad; more than 2 billion shares changed hands on the New York Stock Exchange and the Nasdaq. Only six of the 30 Dow stocks showed gains, led by Verizon Communications (VZ, news, msgs), up 2.9% to $28.81, and AT&T (T, news, msgs), up 1.7% to $23.58.Only 134 S&P stocks were ahead for the day, led by Huntington Bancshares (HBAN, news, msgs), up 32% to $1.36, and the New York Times Co. (NYT, news, msgs), up 16% to $4.07 after suspending its dividend. Citigroup was the worst performer among Dow and S&P 500 stocks.
Meanwhile, 69 Nasdaq-100 stocks were up on the day, with software maker Intuit (INTU, news, msgs), up 12.7% to $23.98. The laggard: Research In Motion (RIMM, news, msgs), down 6.9% to $39.19.
It was a bad day for investors just about everywhere, again because investors are now so worried about the depth and possible duration of the recession.
Hong Kong's Hang Seng Index ($HSIX) shed 2.5% to 12,699. Japan's Nikkei 225 Index ($JP:N225) fell 1.9% to 7,416. The index is off 16.3% this year and has fallen 57.5% since peaking in October 2007.
European stocks were also lower. London's FTSE 100 Index ($GB:UKX) fell 3.2% to 3,889. Germany's Dax Index ($DE:DAX) fell 4.8% to 4,015. The Dax is down 16.5% this year and is down 50% from its 2007 peak. The FTSE index is off 12.3% this year and 42% from its 2007 high.
| Close for week | Wk. ago close | % chg. | 2009 YTD chg. | |
|---|---|---|---|---|
| Dow Jones industrials | 7,365.67 | 7,850.41 | -6.17% | -16.07% |
| S&P 500 | 770.05 | 826.84 | -6.87% | -14.75% |
| Nasdaq Composite | 1,441.23 | 1,534.36 | -6.07% | -8.61% |
| Russell 2000 | 410.96 | 448.36 | -8.34% | -17.72% |
| Crude oil per barrel | $38.94 | $37.51 | 3.81% | -12.69% |
| 10-yr. Treasury yield | 2.77% | 2.88% | -0.11% | 23.53% |
| Gold per troy ounce | $1,002.20 | $942.20 | 6.37% | 13.33% |
Cuomo investigates B of A
Concerns about financials were highlighted after published reports said that Bank of America CEO Ken Lewis had received a subpoena from New York Attorney General Andrew Cuomo about the banking company's purchase of Merrill Lynch during the height of the financial crisis in September.Cuomo is investigating alleged failures to disclose key information to shareholders by management at both Merrill Lynch and Bank of America.
The issue is whether investors were misled about the depth of Merrill's losses in late 2008, and whether investors should have been informed about a series of million-dollar bonuses to Merrill employees. Merrill lost $15.3 billion in the fourth quarter, which weighed heavily on Bank of America's results for the period.
Bank of America shareholders then saw their dividend reduced to a penny, and learned that a group of Merrill Lynch employees split $4 billion in bonuses.
Consumer prices remain flat
The cost of living in the United States was unchanged in January from the same month a year ago, the Labor Department reported Friday. That was in line with economists' expectations and a sign that companies are being forced to keep prices lower to attract consumers in the recession.On a month-to-month basis, the Consumer Price Index rose 0.3% in January, following a 0.7% decline in December.
Core CPI, which excludes food and gas costs, rose 0.2%, slightly higher than the 0.1% economists had expected. Core CPI is considered a better trend indicator than the broader index, because gas and food prices can be subject to special pressures. On a year-over-year basis, core CPI was up 1.7% in January, the lowest level of inflation since mid-2004.
| Fri. | Thur. | Chg. | Month chg. | YTD chg. | |
|---|---|---|---|---|---|
| Crude oil (NYMEX) (per barrel) | $38.94 | $39.48 | -$0.54 | -6.57% | -12.69% |
| Heating oil (per gallon) | $1.1967 | $1.2045 | -$0.0078 | -16.55% | -14.87% |
| Natural gas (per million BTU) | $4.0060 | $4.0780 | -$0.0720 | -9.30% | -28.74% |
| Unleaded gasoline (per gallon) | $1.0746 | $1.0986 | -$0.0240 | -15.31% | 6.59% |
Profit falls at Lowe's, J.C. Penney
Shoppers aren't spending. Home improvement company Lowe's and J.C. Penney said so Friday.Lowe's posted earnings of $162 million, or 11 cents per share, a 60% decline from the $408 million, or 28 cents per share, the company earned in the same quarter a year ago.
The results were a penny shy of estimates.
Department store chain J.C. Penney earned $211 million, or 95 cents per share, a 51% drop from the $430 million, or $1.93 per share, the retailer earned a year ago.
Earnings from continuing operations were 94 cents per share, 2 cents ahead of Street estimates.
J.C. Penney said sales at stores open at least one year fell 11% in the quarter, and the company forecast a first-quarter loss of 20 cents to 30 cents per share with a 13% decline in sales.
Lowe's stock was down 6.6% to $15.86; J.C. Penney shares rose 1.2% to $15.10.
GM's Saab files for bankruptcy protection
GM's Sweden-based unit Saab (SAAAF, news, msgs) is seeking protection from its creditors under the Swedish version of Chapter 11. Saab is also to reorganize into an independent business; it will cease to belong to GM.A reorganization proposal will be made public in three weeks. It is not yet clear whether GM will have to foot the bill for Saab as it tries to reorganize. GM could be held responsible to Saab creditors.
GM has already had $13.4 billion in aid from the U.S. government, and is waiting for the Obama administration to rule on whether its business plan shows a chance for the company to survive.
The Swedish government, however, has already announced that it would provide no aid for Saab, and has accused GM of not fulfilling its responsibilities to the unit.
Andrew Rosenbaum contributed to this report.
| Fri. | Thur. | Chg. | Month chg. | YTD chg. | |
|---|---|---|---|---|---|
| Treasurys | |||||
| 13-week Treasury bill | 0.265% | 0.300% | -0.035 | 20.45% | 130.43% |
| 5-year Treasury note yield | 1.798% | 1.881% | -0.083 | -4.00% | 15.93% |
| 10-year Treasury note yield | 2.772% | 2.857% | -0.085 | -2.53% | 23.53% |
| 30-year Treasury bond yield | 3.565% | 3.688% | -0.123 | -1.05% | 32.48% |
| Currencies | |||||
| U.S. Dollar Index | 86.700 | 87.750 | -1.050 | 0.28% | 5.54% |
| British pound in dollars | $1.4443 | $1.4300 | 0.0143 | -0.51% | -1.98% |
| Dollar in British pounds | £0.6924 | £0.6993 | -0.0069 | 0.51% | 2.02% |
| Euro in dollars | $1.2835 | $1.2692 | 0.0143 | 0.15% | -8.38% |
| Dollar in euros | € 0.7791 | € 0.7879 | -0.0088 | -0.15% | 9.15% |
| Dollar in yen | 93.25 | 94.05 | -0.80 | 3.76% | 2.87% |
| Canadian dollar in U.S. dollars | $0.800 | $0.798 | $0.0020 | -1.79% | -2.23% |
| U.S. dollar in Canadian dollars | $1.251 | $1.254 | -$0.0023 | 1.81% | 2.28% |
| Commodities | |||||
| Gold | $1,002.20 | $976.50 | $25.70 | 7.95% | 13.33% |
| Copper | $1.4330 | $1.4880 | -$0.05 | -2.42% | 1.63% |
| Silver | $14.4900 | $13.9350 | $0.56 | 15.32% | 23.37% |
| Corn | $3.5025 | $3.5325 | -$0.03 | -7.59% | -13.94% |
| Crude oil (NYMEX) (per barrel) | $38.94 | $39.48 | -$0.54 | -12.69% | -12.69% |