Stocks struggle on GM, Goldman Sachs worries

By Charley Blaine and Elizabeth Strott

Stocks fell back today because of fears that the economic slump will clobber the holiday season and sink General Motors (GM, news, msgs) and the U.S. automotive industry.

At the same time, investment bank Goldman Sachs (GS, news, msgs) shares fell 8.5% to $71.21 as fears grew that it will report a fiscal fourth-quarter loss.

The Dow Jones industrials closed down 73 points, or 0.8%, to 8,871. The Standard & Poor's 500 Index was down 12 points, or 1.3%, to 919, and the Nasdaq Composite Index was off 31 points, or 1.9%, to 1,617.

Google (GOOG, news, msgs) was one of the bigger losers, down 3.7% to $317.38 on concern that the recession will stall the company's revenue growth.

The pullback was a big disappointment because Asian and European markets had rallied strongly on China's announcement of a $586 billion economic stimulus plan. The plan would be equivalent to 20% of China's gross domestic product.

In addition, there was some cheer on Wall Street when the Bush administration and American International Group (AIG, news, msgs) announced a renegotiation of the government's aid package. The new package will pump an additional $50 billion into the insurance giant.

• Top Stocks blog: Stocks to survive the market meltdown this week

But while the Dow jumped as much as 216 points by 9:50 a.m. ET, the gains quickly evaporated. A big problem was GM, whose shares slumped 23% to $3.36 -- a 60-year low -- after a Deutsche Bank analyst said the stock could lose what little value remains without government assistance.

In addition, Circuit City (CC, news, msgs) sought bankruptcy protection today, unable to compete effectively against the likes of Best Buy (BBY, news, msgs) and Wal-Mart Stores (WMT, news, msgs). The bankruptcy filing hit shares of Hewlett-Packard (HPQ, news, msgs) on reports that Circuit City may owe H-P $150 million for computers. H-P was down 1.4% to $34.17.

Shares of McDonald's (MCD, news, msgs), on the other hand, were up 1.8% to $56.48 after the fast-food chain reported an 8.2% increase in October same-store sales.

McDonald's said U.S. sales rose 5.3% last month, with a 9.8% jump in Europe. Sales in the Asia-Pacific region, the Middle East and Africa surged 11.5%.

Crude oil in New York was every bit as volatile as the major averages. After rising to $65.56 a barrel this morning, it fell back to $59.10 and then rebounded to settle at $62.41 a barrel, up $1.37 from Friday.

In addition, there was disappointment that the transition team of President-elect Barack Obama said it wouldn't name any Cabinet members this week.

Energy prices -- New York close

	Mon.	Fri.	Chg.	Month chg.	YTD chg.
Crude oil (NYMEX) (per barrel)	$62.41	$61.04	$1.37	-7.96%	-34.98%
Heating oil (per gallon)	$2.0056	$1.9784	$0.0272	-0.03%	-24.30%
Natural gas (per million BTU)	$7.2480	$6.7570	$0.4910	6.86%	-3.14%
Unleaded gasoline (per gallon)	$1.3679	$1.3495	$0.0184	-5.09%	-45.08%

Goldman shares fall nearly to 1999 IPO levels

Goldman Sachs' 8.5% drop to $71.21 brought the stock to within $1 of $70.38. That was its close on May 4,1999, its first day as a publicly traded company.

The stock is down nearly 54% this year and is off 71.2% from its record close of $247.92 on Oct. 31, 2007.

The stock fell after Barclays Capital its estimate for what had been Wall Street's most powerful investment house from a profit of $2.71 a share because of the fall in the stock market.

Barclays believes Goldman is most exposed to the market through its private equity business. They expect at $2.4 billion loss for the principal equity investments business, and also note that its commercial real estate business, leveraged loans, and other areas are subject to write-downs for the quarter. The prices on out-of-the-money November put options are rising, suggesting investors believe there are more losses to bear.

The price has to be a disappointment for investing legend Warren Buffett. In September, he bought $5 billion in preferred stock that pays a 10% and received warrants to buy another $5 billion.

The warrants, exercisable for years, have a strike price of $115. That means, it makes to sense to exercise the warrants when the stock jumps above $115. Obviously, those warrants have no value right now.

GM dives on a downgrade

General Motors shares tumbled after Deutsche Bank downgraded the stock to "sell" from "hold," saying the company may soon become worthless.

"Without government assistance, we believe that GM's collapse would be inevitable, and that it would precipitate systemic risk that would be difficult to overcome for automakers, suppliers, retailers, and sectors of the U.S. economy," the Deutsche Bank analyst wrote in a note this morning.

The GM crisis prompted House Speaker Nancy Pelosi and Senate Majority Leader Harry Reid are to ask Treasury Secretary Hank Paulson to help the ailing automakers.

The Democratic leaders want Paulson to expand the $700 billion Troubled Asset Relief Program to include the struggling GM, Ford Motor (F, news, msgs) and Chrysler. "A healthy automobile manufacturing sector is essential to the restoration of financial market stability, the overall health of our economy, and the livelihood of the automobile sector's work force," they wrote in a letter to Paulson.

Rahm Emanuel, Obama's chief of staff, said Sunday that the U.S. auto industry was "essential" to the economy.

While Emanuel stopped short of endorsing such a plan, the White House today signaled its opposition, saying aid to the industry wasn't discussed during the debate on the banking bailout. Congress may take up automaker assistance when it returns next week.

The automakers have been pushing for an aid package that would go beyond the $25 billion Congress approved in September to help the industry convert to more fuel-efficient vehicles.

Over the summer and into early fall, the industry was hammered by high fuel prices and tight consumer credit. On Friday, GM and Ford posted abysmal quarterly results. Earlier last week, GM, Ford and Chrysler reported sharp declines in October sales.

Starbucks tumbles on US weakness

Starbucks (SBUX, news, msgs) shares were lower in after-hours trading after the coffee chain said profits fell because of weakness in its U.S. business. In addition, the company began booking charges related to closing 600 domestic stores in the U.S. and Australia.

The stock fell 2.9% to $9.90 at 5 p.m. ET. It had closed at $10.20, down 3.3%, in regular trading. Starbucks said it earned $5.4 million, or 1 cent a share, in its fiscal fourth quarter. A year ago, the company earned $158.5 million, or 21 cents per share.

Excluding charges related to restructuring and store closure costs, Starbucks had a per-share profit of 10 cents, below the 13-cent average estimate by Wall Street, Reuters said.

Revenue grew a slower-than-expected 3% to $2.5 billion from $2.4 billion, as its U.S. business deteriorated. Sales fell 8% at established stores as overall U.S. traffic and the average value of each transaction both declined.

Without issuing a new earnings forecast for 2009, Starbucks said that, based on a 2% decline in overall comparable store sales, it would earn about 90 cents per share, excluding items.

China unveils massive stimulus plan

China on Sunday announced a $586 billion stimulus package to help boost the country's slowing economy over the next two years.

Now the fourth-biggest economy in the world, China has started to feel the impact of the global slowdown. In the third quarter, China's economic growth slowed to 9%, down from 11.9% in the third quarter of 2007.

• Get free, real-time stock quotes on MSN Money

"This is a shift long advocated by analysts of the Chinese economy and by some within the government," said Xinhua, China's state-run news agency.

Chinese President Hu Jintao will be in Washington this week for a global economic summit.

Asian markets surged on the news. China's Shanghai Index rose 7.3%, Japan's Nikkei 225 Index gained 5.8%, and Hong Kong's Hang Seng Index added 3.5%.

European stocks also made gains in today's session. London's FTSE 100 Index rose 0.9%, the Paris CAC 40 Index was up 1.1%, and the broader DJ Stoxx 600 Index was up 0.6%.

Meanwhile, economic officials from the Group of 20 nations said Sunday that they will work together to tackle the global economic slowdown.

The leaders met in Sao Paolo, Brazil, over the weekend and urged governments to boost spending. In a joint statement, the delegates said that the International Monetary Fund and the World Bank will need to cooperate to help stabilize the global financial system.

Weak results but new deal for AIG

AIG shares closed up 17 cents, or 8.1%, to $2.28, after the Federal Reserve and Treasury Department announced a restructured plan to help the company.

The government is replacing the original $123 billion bailout of AIG with a new package worth about $150 billion, where the government will invest $40 billion in preferred shares of AIG and will spend an additional $50 billion to buy distressed assets from the company. As part of the deal, AIG debt associated with the original $85 billion loan will be reduced to $60 billion.

• Read the government's statement

"These new measures establish a more durable capital structure, resolve liquidity issues, facilitate AIG's execution of its plan to sell certain of its businesses in an orderly manner, promote market stability and protect the interests of the U.S. government and taxpayer," the Fed and Treasury said in a statement.

Also this morning, AIG reported a third-quarter net loss of $9.24 billion, or $3.42 per share -- almost four times greater than the loss of 90 cents per share that analysts had expected. The insurance giant earned $1.44 per share in the same period last year.

Fannie Mae posts whopping loss

Mortgage-finance giant Fannie Mae (FNM, news, msgs) reported a massive $29 billion loss in the third quarter, or $13 per share -- its worst ever as well as the worst loss for any S&P 500 company so far this year.

Analysts had expected a loss of $1.60 per share. Fannie Mae lost $1.56 per share in the same quarter last year.

The company has not yet had to draw on any government funding but cautioned that it may fall to negative net worth by the end of the year, which means it could be forced to seek government help.

Fannie Mae's credit-related losses soared to $9.2 billion from $5.3 billion in the second quarter and $1.2 billion a year earlier.

The government took over Fannie Mae and sibling Freddie Mac (FRE, news, msgs) on Sept. 6, after the mortgage-market meltdown slammed both companies. Shares of Fannie Mae fell 2 cents to 72 cents today.

October retail sales to be worst since 2001

When the government reports later this week on October retail sales, the picture will probably be grim.

Retail sales are expected to have fallen 2% in October, year over year, the biggest monthly decline since 2001. In September, the Commerce Department said retail sales fell 1.2%.

"October will prove to be a disaster for retail sales, with only the discounters having anything to cheer about," economist Avery Shenfeld of CIBC World Markets wrote in a note to clients last week. "Note that the (number excluding auto sales) will partly reflect the drop in nominal gas-station sales on falling pump prices, and will therefore exaggerate the decline in real terms."

• Read more: Retailers face not-so-happy holidays

A decline in October would be the fourth consecutive month of falling sales, and that string would be the worst extended decline in 34 years.

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

The worry about the Christmas season hit stocks like Bed Bath & Beyond (BBBY, news, msgs), down 6.1% to $21.57; Polo Ralph Lauren (RL, news, msgs), down 6.7% to $42.75; and Hasbro (HAS, news, msgs), down 3.2% to $26.84.

NRG Energy rejects Exelon's offer

NRG Energy's (NRG, news, msgs) board rejected a $6.2 billion unsolicited offer from Exelon (EXC, news, msgs) on Sunday.

NRG's board said that the offer was "highly conditional, as Exelon has yet to obtain committed financing and has had its credit rating downgraded."

Exelon made its all-stock offer on Oct. 19.

NRG shares were down 5.5% to $22.56 on the news. Exelon fell 6.2% to $50.49. The declines were a big reason that utility stocks were generally lower. The Dow Jones Utilities Average ($UTIL) was down 3.2% to 364. The index is down 32% this year.

Andrew Rosenbaum contributed to this report.

Short hits from the markets -- New York close

	Mon.	Fri.	Chg.	Month chg.	YTD chg.
Treasurys
13-week Treasury bill	0.200%	0.290%	-0.090	-54.02%	-93.63%
5-year Treasury note yield	2.504%	2.558%	-0.054	-11.24%	-27.53%
10-year Treasury note yield	3.760%	3.780%	-0.020	-5.29%	-6.82%
30-year Treasury bond yield	4.214%	4.261%	-0.047	-3.55%	-5.49%
Currencies
U.S. Dollar Index	86.525	86.450	0.075	0.21%	12.82%
British pound in dollars	$1.5620	$1.5674	-0.0054	-2.91%	-21.48%
Dollar in British pounds	£0.6402	£0.6380	0.0022	2.99%	27.35%
Euro in dollars	$1.2755	$1.2744	0.0011	0.05%	-12.73%
Dollar in euros	€ 0.7840	€ 0.7847	-0.0007	-0.05%	14.59%
Dollar in yen	97.98	98.20	-0.22	-0.65%	-12.40%
Canadian dollar in U.S. dollars	$0.838	$0.842	-$0.0046	1.22%	-15.65%
U.S. dollar in Canadian dollars	$1.195	$1.188	$0.0074	-1.18%	18.57%
Commodities
Gold	$746.50	$734.20	$12.30	3.94%	-10.92%
Copper	$1.7520	$1.6970	$0.05	-4.21%	-42.39%
Silver	$10.2200	$9.9630	$0.26	5.04%	-31.50%
Corn	$3.8350	$3.7550	$0.08	-4.48%	-15.81%
Crude oil (NYMEX) (per barrel)	$62.41	$61.04	$1.37	-7.96%	-34.98%