Stocks pulled back today as investors cashed in their profits after riding the big rally since March 9. At the same time, there was skepticism that the Federal Reserve's latest efforts to stem the U.S. recession are too costly and untested.
Financial stocks were hardest hit in the selling. Commodities and commodity-related stocks moved higher, however, as the dollar continued to drop against major currencies after the Federal Reserve's decision on Wednesday to buy more than $1.1 trillion in mortgage and government securities.
Crude oil topped $50 a barrel for the first time since January, and silver moved up more than 13% to $13.52 an ounce in New York, its best close since Feb. 25.
The Dow Jones industrials, which had jumped 14.4% since the March 9 closing low, were down 86 points, or 1.2%, to 7,401. The Standard & Poor's 500 Index was off 10 points, or 1.3%, to 784, and the Nasdaq Composite Index was off 8 points, or 0.5%, to 1,483.
Financial stocks were probably the most vulnerable market segment as trading began today. The group had led the market higher from its lows earlier this month. Insurance, bank and credit card stocks were all lower, and the Select Sector SPDR-Financial (XLF, news, msgs) exchange traded fund, which tracks the financial sector of the S&P 500, was down 7.9% to $8.66.
Prudential Financial (PRU, news, msgs) was the worst-performing S&P 500 stock, falling 24.7% to $18.76. After Wednesday's close, the company saw its debt rating cut two notches by Moody's Investors Service.
Citigroup (C, news, msgs) was off 15.6% to $2.60; JPMorgan Chase (JPM, news, msgs) fell 8% to $24.95 and Bank of America (BAC, news, msgs) dropped 9.7% to $6.93.
A number of investors told Reuters and other news services that they were unsettled by the implications of the Fed's action to pump another $1 trillion into the financial system and a plan to expand its consumer and small business lending program, fearing the moves could stir up inflation in the long term.
But commodity stocks were sharply higher -- a reaction to the dollar's drop. Alcoa (AA, news, msgs) was the top-performer among the 30 Dow stocks, up 16.8% to $6.40.
Crude oil jumped 7.2% to $51.61, its highest close since Jan. 6. Apache (APA, news, msgs) was up 3.6% to $67.24. Schlumberger (SLB, news, msgs) climbed 3.3% to $44.31. Transocean (RIG, news, msgs) rose 3.8% to $61.57.
Gold stocks were higher as gold rose 7.8% to $958.80 an ounce in New York. Newmont Mining (NEM, news, msgs) added 6.9% to $42.90. Freeport-McMoRan (FCX, news, msgs) was up 5.7% to $40.04. Barrick Gold (ABX, news, msgs) jumped 4.5% to $33.36.
Adding to the stress today were two additional issues:
- The Philly Fed index showed that manufacturing in the Philadelphia region fell in March -- the 15th monthly decline in 16 months -- although the decline was milder than during the previous month.
- The number of people still collecting jobless benefits rose by 185,000 to a record 5.47 million, although the number of new claims filed in the latest week was down slightly.
| Wed. | Tues. | Chg. | Month chg. | YTD chg. | |
|---|---|---|---|---|---|
Crude oil (NYMEX) (per barrel) | $51.61 | $48.14 | $3.47 | 15.30% | 15.72% |
Heating oil (per gallon) | $1.3563 | $1.2640 | $0.0923 | 7.14% | -3.51% |
Natural gas (per million BTU) | $4.1740 | $3.6840 | $0.4900 | -0.57% | -25.76% |
Unleaded gasoline (per gallon) | $1.4373 | $1.3657 | $0.0716 | 12.23% | 42.56% |
GE says finance unit will be profitable
General Electric (GE, news, msgs) aggressively asserted today that its finance unit is going to be profitable both for the quarter and the year.It didn't look as though investor concerns were relieved. The stock started the day up as much as 10% but fell 1.8% to $10.13.
Stock Charts (Year)
General Electric
GE was the latest among big companies with big financial businesses to issue reassuring comments about its financial division. Citigroup, JPMorgan Chase and Bank of America have made similar statements.
GE said its GE Capital finance unit will be profitable in the first quarter of 2009 and for the whole year.
GE also said the unit will not require additional capital even if unemployment in the U.S. shoots up to 10% and gross domestic product falls by more than 3% this year.
FedEx misses, issues warning
Shipping company FedEx reported a 75% plunge in third-quarter profit this morning, saying fewer businesses and consumers were sending packages. FedEx is often considered a bellwether of the country's economic health.FedEx earned $97 million, or 31 cents per share, a huge drop from the $393 million, or $1.26 per share, it earned in the same period a year earlier. Revenue fell to $8.14 billion from $9.44 billion. Analysts were looking for earnings of 48 cents per share on $9.01 billion in revenue.
Stock Charts (Year)
FedEx
The economy "will definitely be weak" in 2009, but FedEx said it's seen the bottom in quarter-over-quarter declines for international air and domestic ground shipments.
FedEx said it is planning more cost cuts as it deals with the downturn, including reducing network capacity at its FedEx Express and FedEx Freight units. The company said it expects further reductions of personnel and work hours.
The company was not optimistic about the current quarter: It said that fourth-quarter earnings will be between 45 cents and 70 cents per share. The consensus estimate is for 72 cents per share.
Auto suppliers rise on Treasury help
A number of auto supplier stocks moved higher today after the Obama administration pledged up to $5 billion to help the suppliers whose health is crucial to the recovery of the domestic auto industry.Analysts said the development was welcome and overdue. Lear (LEA, news, msgs) rose 84.7% to $1.33; American Axle (AXL, news, msgs) added 0.7% to $1.56. Visteon (VSTN, news, msgs) jumped 81.3% to 29 cents.
Ford (F, news, msgs) and General Motors (GM, news, msgs) shares rose 1.6% to $2.51 and 8.7% to $2.87, respectively. Privately held Chrysler is controlled by Cerberus Capital Management.
"March and April are the points of maximum pain for the supply chain from a cash perspective," said Key Banc analyst Brett Hoselton in a note for clients. "Most suppliers are on a 45-60-day (payment) cycle and, since production was limited in December and January, there is little cash coming in."
U.S. auto sales tumbled almost 39% through the first two months of 2009 to their lowest levels in 27 years.
Some AIG bonuses returned; Congress still wants its piece of flesh
Some employees of the insurer AIG, which has received about $180 billion in government aid, have agreed to return bonuses they received.But that didn't stop the House of Representatives from approving handily a bill to tax up to 90% of the bonuses. The bill casts a wider net: It would apply to employees of companies that received at least $5 billion in federal aid.
The Senate is considering its own legislation.
Some Republicans argued the bill is unconstitutional, and there's a question of about whether taxes on the AIG employees could be collected. The employees are part of a group that is entirely based in London.
AIG barely escaped collapse last September because taxpayers purchased 80% of its shares. But a firestorm erupted this past weekend, when the company paid out $165 million in bonuses and retention payments.
Testifying before Congress on Wednesday, AIG Chief Executive Officer Edward Liddy said that he had asked employees who earned more than $100,000 a year to return at least half of the bonuses. Liddy said that a number of them had agreed, with some giving it all back, even some who had received more than $1 million.
Geithner takes the fall
One irony in the controversy over the AIG bonuses was that the stimulus passed recently by Congress had a provision stripped out that would have prevented the bonuses from being paid.The provision was taken out at the request of Senate Banking chairman Chris Dodd, D-Conn. But late today, Treasury Secretary Tim Geithner said he asked for the exclusion because he was afraid the government would be successfully sued over non-payment.
But Geithner said he did not learn the full scale of the bonus problems until March 10.
"It's my responsibility, I was in a position where I didn't know about those sooner, I take full responsibility for that," he said.
Palm's loss is terrible
After the close, shares of smart phone maker (PALM, news, msgs) fell 5.2% to $7.31 after the company's first-third quarter loss widened significantly from a year ago.Palm said retailers sold 482,000 Palm units in the quarter, down 42% from a year ago.
The company, which had warned investors results would be awful, lost $98 million, or 89 cents a share, down from a loss of $57 million, or 53 cents a share, a year ago.Excluding one-time expenses, the loss was $94.7 million, or 86 cents a share. Analysts had expected a loss of 59 cents, Reuters said.
Sales tumbled 71% to $90.6 million from $312.1 million a year ago; analysts had expected $105 million.
Sales of Palm's older model smart phones, like the Treo and Centro, have fallen off sharply as the company focuses on the launch of its much-anticipated Palm Pre in the first half of this year.
Palm shares had fallen 4.7% to $7.71 in regular trading.
Madoff wants to go back to his penthouse
Who wouldn't prefer a Manhattan penthouse to a jail cell?Bernie Madoff's lawyer, Ira Sorkin, asked a federal appeals court judge to let Madoff stay at his penthouse apartment until his sentencing hearing in June.
But Madoff won't be getting out today -- if at all. A 3-judge panel in New York said it wanted time to think about the question and will announce a decision "in due course."
Sorkin argued that Madoff, who pleaded guilty on March 12 to defrauding investors in a $65 billion Ponzi scheme, has never been a flight risk.
The court said it will issue its decision at a later date.
Madoff is living at the Metropolitan Correctional Center in Manhattan. Prior to his guilty plea last week, he had been under house arrest at his apartment, sparking outrage.
Meanwhile, Madoff's accountant, David Friehling, has been charged with criminal fraud after turning himself in on Wednesday. Friehling became Madoff's primary auditor in the early 1990s.
Friehling was the sole practitioner in his accounting firm, Friehling & Horowitz, a small firm in New City, a suburb of New York City.
"Too many Larry, Moe and Curly accounting firms" are now auditing money managers, James Cox, a law professor at Duke University, told Bloomberg News. "While we made progress with accounting for reporting companies, we have not with investment advisers."
Fed's Bernanke like Rambo
The Federal Reserve's announcement Wednesday that it will inject $1.1 trillion into the economy by purchasing Treasurys and mortgage-backed securities sparked a broad rally, and the surprising move sent the yield on the 10-year note down to 2.48% Wednesday from 3.01% late Tuesday, the biggest decline since 1962.The Fed kept its key federal funds rate on hold at between 0.25% and 0%. The central bank started lowering rates in September 2007, when the fed funds rate was 5.25%, to try to battle the weakening economy and tightening credit markets.
One expert likened Fed chief Ben Bernanke to Sylvester Stallone's movie character Rambo.
"This is a very powerful and aggressive move," Richard Hoey, the chief economist at Bank of New York Mellon, told Bloomberg Television. "One of the reasons I've been arguing we won't have a depression is we've got a Fed chairman who understands the problem and is going to come with the right diagnosis and the right medicine."
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The measures could be a problem down the road, credit analysts at Landesbank Baden-Wurttemberg, in Germany, wrote in a note to clients. "Bottom line is the Fed is adding a trillion dollars to their balance sheet. In the long run, the price for these massive rescue measures might be inflation as once the economy recovers the Fed might be not able to raise interest rates quickly enough."
Citigroup plans a reverse stock split
Citigroup shares were lower after the company said that it has asked federal regulators to approve its previously announced plan to increase its common stock and to move forward with a reverse stock split.The bank did not state any reverse-split ratios.
The company also said it plans to spend $10 million on new offices for CEO Vikram Pandit, according to Bloomberg News.
Citigroup has received $45 billion in cash from U.S. taxpayers and loan support of $103 billion from the Treasury. The bank is now 36% owned by the U.S. government.
Oracle to pay a dividend
Software company Oracle (ORCL, news, msgs) late Wednesday announced its first-ever dividend payout, despite the weak economy."When many others are reducing or eliminating dividend, we are putting one in place," President Safra Catz said in a statement.
Stock Charts (Year)
Oracle
Nike
Revenue rose 2% to $2.45 billion. Shares jumped 9.7% to $17.37.
Oracle gave cautious guidance for the current quarter, however, citing the stronger U.S. dollar. The company said it expects earnings per share, excluding items, to come in between 42 cents and 46 cents. Analysts are looking for 45 cents per share.
Andrew Rosenbaum contributed to this report.
| Wed. | Tues. | Chg. | Month chg. | YTD chg. | |
|---|---|---|---|---|---|
| Treasurys | |||||
| 13-week Treasury bill | 0.190% | 0.205% | -0.015 | -24.00% | 65.22% |
| 5-year Treasury note yield | 1.636% | 1.515% | 0.121 | -19.01% | 5.48% |
| 10-year Treasury note yield | 2.597% | 2.533% | 0.064 | -14.60% | 15.73% |
| 30-year Treasury bond yield | 3.612% | 3.572% | 0.040 | -2.96% | 34.23% |
| Currencies | |||||
| U.S. Dollar Index | 83.640 | 84.980 | -1.340 | -5.12% | 1.81% |
| British pound in dollars | $1.4503 | $1.4320 | 0.0183 | 1.26% | -1.57% |
| Dollar in British pounds | £0.6895 | £0.6983 | -0.0088 | -1.25% | 1.59% |
| Euro in dollars | $1.3669 | $1.3521 | 0.0148 | 7.79% | -2.43% |
| Dollar in euros | € 0.7316 | € 0.7396 | -0.0080 | -7.23% | 2.49% |
| Dollar in yen | 94.49 | 96.01 | -1.52 | -3.20% | 4.24% |
| Canadian dollar in U.S. dollars | $0.808 | $0.803 | $0.0051 | 2.83% | -1.24% |
| U.S. dollar in Canadian dollars | $1.239 | $1.246 | -$0.0069 | -2.75% | 1.26% |
| Commodities | |||||
| Gold | $958.80 | $889.10 | $69.70 | 1.73% | 8.42% |
| Copper | $1.8075 | $1.7165 | $0.09 | 17.48% | 28.19% |
| Silver | $13.5200 | $11.9350 | $1.59 | 3.13% | 5.67% |
| Corn | $3.8825 | $3.8825 | $0.00 | 10.69% | -4.61% |
| Crude oil (NYMEX) (per barrel) | $51.61 | $48.14 | $3.47 | 15.30% | 15.72% |
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