Dow up 190 despite weakening economy

By Charley Blaine and Elizabeth Strott

Today, the stock market didn't fall apart in the last 15 minutes of trading. Instead, new buying late in the day turned a nice rally into something much better.

The Dow Jones industrials finished with a gain of 190 points, or 2.1%, to 9,181. The Nasdaq Composite Index had added 41 points, 2.5%, to 1,699, and the Standard & Poor's 500 Index rose 24 points, 2.6%, to 954.

Today's gain was just the sixth of the month for the Dow and the S&P 500 and the seventh for the Nasdaq, which also enjoyed its third-straight gain.

With today's gain, the Dow is up 9.6% for the week. If the blue-chip index holds at that level on Friday, it will have its best weekly gain since the week of Aug. 16, 1982, when the great bull market of the 1980s erupted.

But before you too excited, consider this: October may well be the worst month for the Dow and the S&P 500 since October 1987 and the worst for the Nasdaq since February 2001.

The market's gains came despite a Commerce Department report that confirmed what many Americans have long suspected: The economy has sunk into a recession.

Powering the rally were gains in semiconductors, airlines, energy and computer stocks; 128 points of the Dow's gain came in the last 20 minutes of trading.

In addition, investors were betting that interest-rate cuts around the world will limit damage from the slump. The Federal Reserve cut its key federal funds rate to 1% on Wednesday.

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The market appeared set for a huge day today after Asian stocks roared higher overnight, partly on expectations that the Bank of Japan will lower its key lending rate by a quarter of a percentage point to 0.25%. An announcement is expected Friday.

Japan's Nikkei 225 Index ($N225) surged 10%, and the Hong Kong Hang Seng Index ($HSIX) jumped 12.8%.

European stocks moved higher as well. London's FTSE 100 Index ($GB:UKX) closed up 1.2%, and Germany's DAX 30 Index ($DE:DAX) was up 1.3%. The broader Dow Jones Stoxx 600 Index was up 0.1%.

Twenty-five of the 30 Dow stocks were higher, led by Intel (INTC, news, msgs), up 8.2% to $16.17, and Hewlett-Packard (HPQ, news, msgs), up 6.5% to $37.69. At the same time, 419 S&P 500 stocks were higher, along with 81 stocks in the Nasdaq-100 Index ($NDX.X). The index was up 32 points, or 2.4% to 1,334. Apple (AAPL, news, msgs), up 6.2% to $111.04, added about 10 points to the index.

In a sense, today's rally was the rally that should have occurred Wednesday after the Fed's rate cut.

The Dow had been up 255 points 15 minutes before Wednesday's close. It collapsed to a 74-point loss when the market was blindsided by what proved to be an inaccurate report of an earnings warning from Dow component General Electric (GE, news, msgs). GE shares tumbled on the report before recovering somewhat in after-hours trading.

Today, General Electric closed up 0.8% to $19.35.

Energy prices -- New York close

	Thur.	Wed.	Chg.	Month chg.	YTD chg.
Crude oil (NYMEX) (per barrel)	$65.96	$67.50	-$1.54	-34.46%	-31.28%
Heating oil (per gallon)	$1.9841	$2.0010	-$0.0169	-30.69%	-25.11%
Natural gas (per million BTU)	$6.4310	$6.7780	-$0.3470	-13.54%	-14.06%
Unleaded gasoline (per gallon)	$1.4670	$1.5330	-$0.0660	-40.96%	-41.10%

Another truly large profit for ExxonMobil

ExxonMobil (XOM, news, msgs) reported the biggest quarterly profit ever from a U.S. company today.

Exxon shares were lower for most of the day but recovered to $75.05, up 0.5% on the day. The recovery was partly due to crude oil's moving up from a low of $64.04 a barrel to $65.96.

Shares of the Dow component have fallen about 21% since peaking on May 20 at $94.56.

Exxon earned a whopping $14.83 billion in the third quarter -- up 58% from the $9.41 billion the company earned a year ago. The net income was also four times the total market capitalization of General Motors (GM, news, msgs).

On a per-share basis, ExxonMobil earned $2.86, up from $1.70 and far better than the consensus estimate of $2.39 per share.

Revenue jumped 35% to $137.7 billion, also topping Wall Street's expectation of $131.1 billion.

That figure was more than the combined revenue for fellow Dow components McDonald's (MCD, news, msgs), Merck (MRK, news, msgs), 3M (MMM, news, msgs), Alcoa (AA, news, msgs), Coca-Cola (KO, news, msgs) and American Express (AXP, news, msgs) over the last 12 months.

Hartford Financial's big decline

Hartford Financial Services Group (HIG, news, msgs), the insurer that got an investment from Germany's Allianz SE this month, plunged 52% to $9.62 after reporting its first unprofitable quarter in five years on writedowns in investments in financial firms.

The stock was the worst S&P 500 performer.

The shares were downgraded to "neutral" from "buy" at Merrill Lynch, which said the company may need to raise capital.

Meanwhile, fellow insurer Cigna (CI, news, msgs) fell the most in six years, sliding 22% to $15.58.

Cigna, which specializes in employer-sponsored medical benefits, posted third-quarter profit that missed the average analyst estimate by 16% because of shrinking health-plan membership and falling values of stocks held by its annuities business.

Weak consumer spending weighs on GDP

While the GDP report was better than economists had expected, there was some ugly news on consumer spending to consider as well.

Consumer spending declined 3.1% in the third quarter -- the first decline since 1991, and the biggest drop since the second quarter of 1980.

"Household retrenchment is probably just beginning," wrote MKM Partners Chief Economist Michael Darda in a note this morning. "Indeed, the economy literally fell off a cliff during the September-October credit spasm."

The fourth quarter is likely to be much weaker, he predicted. "Government spending and Fed lending appear to be the only sources of growth for the economy."

Consumer spending makes up about two-thirds of the economy.

The consensus estimate for third-quarter GDP had been a 0.5% contraction; economists' forecasts had ranged from 1.2% expansion to 1.9% contraction. The third-quarter report will be revised twice, in November and December.

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Many economists expect the economy to contract through the first half of 2009. Technically, the current weakness in the economy can't be called a recession until it produces two consecutive quarters of contraction -- or negative numbers -- in the GDP. The economy rose at an annual rate of 0.9% in the first quarter and 2.8% in the second quarter.

This morning, the Labor Department said initial unemployment claims remained unchanged last week at 479,000 claims.

In the same week a year ago, there were 332,000 initial jobless claims.

American Express to cut jobs

Big business is now doing big job cuts.

American Express said today it will slash about 10% of its work force, or roughly 7,000 jobs, to cut costs as the financial services giant grapples with the recent turmoil in the financial markets and the credit crisis. The company expects cost savings of $700 million next year from the cuts.

American Express said it is suspending salary increases for management-level employees next year and instituting a hiring freeze for any current open positions.

The company will also scale back on its investment spending on technology, marketing and business development.

Shares of the Dow component were up 3.4% to $26.06.

Meanwhile, two groups are urging federal regulators for credit card forgiveness for heavily indebted consumers -- with those near bankruptcy receiving the most help.

The Financial Services Roundtable and the Consumer Federation of America sent a letter to U.S. Comptroller of the Currency John Dugan, asking regulators to let lenders reduce the amount of debt that consumers owe by up to 40%.

"This proposal would make it financially feasible for credit card lenders to provide immediate financial assistance to American consumers who are carrying record levels of debt," the groups said in a release.

Americans have about $900 million in credit card debt, according to the Federal Reserve.

Motorola sees a weak fourth quarter, cuts 3,000 jobs

Motorola (MOT, news, msgs) shares fell 5.3% to $5.17 today after the company warned its fourth-quarter results would miss expectations.

Motorola also said its struggling mobile phone business would weaken further in 2009, forcing the company to delay its plan to spin off the unit.

The company also said it will cut 3,000 jobs and focus on fewer cell technologies, Co-CEO Sanjay Jha told analysts today.

"The reality is there is no quick fix here," said the newly hired Jha, who also heads Motorola's mobile devices division.

Delta, Northwest seal merger

Delta Air Lines (DAL, news, msgs) and Northwest Airlines late Wednesday closed their deal to merge, becoming the world's biggest airline by traffic.Delta, which is buying Northwest in an all-stock deal worth about $2.6 billion, first announced merger plans in April.

Delta and Northwest said they expect to save $2 billion a year in operational expenses.

The deal may compel other airlines to follow suit, according to one expert.

"The remarkable progress being made by Delta/Northwest may well trigger another round of consolidation," Joe Schwieterman, transportation expert at DePaul University, told Thomson Reuters.

Airlines have been slammed by soaring fuel costs this year, forcing many to cut capacity and to add fuel surcharges and charges for checked bags.

Oil prices have come well off the highs seen in July, a change that gave Delta and Northwest some added flexibility and helped them get approval for the merger from the Department of Justice on Wednesday.

The merged airline will serve 66 countries and more than 375 cities around the world.

Delta shares rose 19.5% to $9.55.

Government working on homeowner bailout

The Bush administration is discussing plans that could help up to 3 million struggling homeowners, The New York Times reported late Wednesday.

The plan could cost between $40 billion and $50 billion, the paper reported, and would be financed out of the $700 billion financial bailout package Congress approved earlier in October.

The government would pick up half the losses on home loans if mortgage companies agree to lower borrowers' monthly mortgage payments for the next five years, the report said, citing people close to the situation.

The news pushed homebuilding stocks higher. The Philadelphia Housing Sector Index ($HGX.X) was up 2.7% to 85. Pulte Homes (PHM, news, msgs) was up 3.6% to $10.24. Ryland (RYL, news, msgs) was up 6.7% to $16.99.

Andy Rosenbaum contributed to this report.

Short hits from the markets -- New York close

	Thur.	Wed.	Chg.	Month chg.	YTD chg.
Treasurys
13-week Treasury bill	0.375%	0.565%	-0.190	-58.33%	-88.06%
5-year Treasury note yield	2.792%	2.745%	0.047	-6.50%	-19.19%
10-year Treasury note yield	3.939%	3.874%	0.065	2.93%	-2.38%
30-year Treasury bond yield	4.284%	4.238%	0.046	-0.49%	-3.92%
Currencies
U.S. Dollar Index	85.255	85.635	-0.380	7.43%	11.16%
British pound in dollars	$1.6455	$1.6402	0.0054	-7.68%	-17.28%
Dollar in British pounds	£0.6077	£0.6097	-0.0020	8.32%	20.89%
Euro in dollars	$1.2960	$1.2979	-0.0019	-8.09%	-11.33%
Dollar in euros	€ 0.7716	€ 0.7705	0.0011	8.80%	12.77%
Dollar in yen	98.53	97.35	1.18	-7.07%	-11.91%
Canadian dollar in U.S. dollars	$0.823	$0.820	$0.0030	-12.53%	-17.14%
U.S. dollar in Canadian dollars	$1.215	$1.220	-$0.0044	14.26%	20.60%
Commodities
Gold	$738.50	$754.00	-$15.50	-16.16%	-11.87%
Copper	$1.8905	$2.0880	-$0.20	-34.33%	-37.83%
Silver	$9.7850	$9.8050	-$0.02	-20.29%	-34.42%
Corn	$4.0950	$4.2075	-$0.11	-16.00%	-10.10%
Crude oil (NYMEX) (per barrel)	$65.96	$67.50	-$1.54	-34.46%	-31.28%