Market Dispatches

Market Dispatches12/18/2008 8:30 PM ET

Dow off 219 as GE slides, oil drops to $36

Crude falls to $36 as drooping global demand trumps OPEC production cuts. GE tumbles after S&P cuts its credit outlook. The Bush administration is thinking about bankruptcies for GM and Chrysler. Oracle, Research In Motion results cheer Street.

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By Charley Blaine and Elizabeth Strott

Stocks slumped today after Standard & Poor's said it may cut its AAA rating for Dow component General Electric (GE, news, msgs) and crude oil dropped to nearly $36.

The Dow Jones industrials closed down 219 points, or 2.5%, to 8,605. The Standard & Poor's 500 Index was off 19 points, or 2.1%, to 885, and the Nasdaq Composite Index was off 27 points, or 1.7%, to 1,552.

S&P cut its credit outlook for GE to "negative," which means a downgrade is possible. Investors were clearly disheartened and the shares fell 8.2% to $15.96.

Meanwhile, crude oil tumbled nearly 10% to $36.22 a barrel today as traders concluded that sagging global demand would overwhelm a production cut by the Organization of Petroleum Exporting Countries.

Crude has fallen more than 75% from its peaks last July. Energy stocks were lower on crude's decline.

But consumers are getting a huge break. Gasoline was averaging $1.67 a gallon today, down 59% from its highs in July, according to AAA's Daily Fuel Gauge Report.

While GE and oil grabbed headlines, auto stocks fell today as the White House said it was weighing "an orderly bankruptcy" for General Motors (GM, news, msgs) and Chrysler Group. GM was off 16.3% to $3.66 and was the worst performer among the 30 Dow stocks and the S&P 500. Ford Motor (F, news, msgs), which isn't in the discussions about bankruptcy filings, was down 9.6% to $2.84.

While GM was the weakest Dow stock, of the 30 Dow stocks. But declines in GE, the second-worst Dow performer, and energy giants ExxonMobil (XOM, news, msgs) and Chevron (CVX, news, msgs) contributed 76 points to the Dow's loss. Exxon and Chevron were 5% to $77 and 4.9% to $73.03, respectively.

Stock Charts (Year)

General Electric
Graphical chart for GE
ExxonMobil
Graphical chart for XOM
After the close, shares of software maker Oracle (ORCL, news, msgs) and BlackBerry manufacturer Research In Motion (RIMM, news, msgs) were higher after investors appeared to like third-quarter and fourth-quarter earnings estimates, respectively.

Oracle, which had closed at $16.61 in regular trading, was up 0.5% to $16.70. Research In Motion shares were up 1% to $38.83. The shares had fallen 5.5% in regular trading.

Only five of the 30 Dow were higher today, led by Merck (MRK, news, msgs), up 2.3% to $27.74. In addition, 133 S&P 500 stocks showed gains, along with just 21 stocks in the Nasdaq-100 Index ($NDX.X). The index fell 21 points, or 1.7%, to 1,205.

S&P: GE earnings may worsen

S&P cut General Electric debt ratings outlook and those of its GE Capital finance arm were changed to "negative" from "stable," reflecting concern earnings could deteriorate further than previously thought.

The AAA ratings on both entities, the highest available, were left intact. But the ratings company said there is at least a one-in-three possibility of a downgrade in the next two years.

GE CEO Jeffrey Immelt said Dec. 16 that earnings from the company’s industrial businesses, which includes NBC-Universal, will rise no more than 5% next year. That’s less than a range of 10% to 15% given in September. Profit at GE Capital, the finance arm, will decline to $5 billion in 2009 from about $9 billion excluding restructuring expenses, he repeated.

GE Capital’s "earnings deterioration in 2009 and 2010 could be greater than we previously assumed," the S&P analysts wrote. "The outlook revision reflects the continuing risks posed by GECC's reliance on confidence-sensitive wholesale funding, despite the benefits of temporary U.S. government support programs and of management’s ongoing efforts."

Only six non-financial companies are rated AAA by S&P: GE, ExxonMobil, drug producers Johnson & Johnson (JNJ, news, msgs) and Pfizer (PFE, news, msgs), payroll and benefits manager Automatic Data Processing (ADP, news, msgs) and software maker Microsoft (MSFT, news, msgs) . (Microsoft is the publisher of MSN Money.)

Energy prices -- New York close
 Thur.Wed.Chg.Month chg.YTD chg.
Crude oil (NYMEX) (per barrel)$36.22$40.06-$3.84-33.47%-62.26%
Heating oil (per gallon)$1.3729$1.4425-$0.0696-17.97%-48.18%
Natural gas (per million BTU)$5.5480$5.6190-$0.0710-14.78%-25.86%
Unleaded gasoline (per gallon)$0.9629$1.0055-$0.0426-15.99%-61.34%

Oil's drop hits energy shares

Energy stocks were nearly all lower due to the downdraft caused by crude's drop. One near-winner was Valero Energy (VLO, news, msgs), which is one of the largest independent oil refiners. Shares were off 1.4% to $22.04.

Oil and gas producers and oil services companies were lower. Anadarko Petroleum (APC, news, msgs) fell 6.8% to $36.55; the stock has fallen 54% since May

"OPEC will be seen as having done the sensible thing," Tony Regan, an independent oil and gas consultant in Singapore, told Bloomberg Television. "However, they are the supply-side of the equation, and no one is looking at the supply side. People are more focused on declining demand."

Oil prices have slumped more than $100 since closing at a record $145.08 a barrel in July.

Oracle gives Street some confidence

Oracle posted a drop in new sales and said they could fall up to 10% in the current quarter, but relieved investors who feared even worse sent the shares up 3% to $17.10 in after-hours trading. The shares had closed off 0.8% to $16.61 in regular trading.

The forecast of a drop in new license sales of to up to 10% met Wall Street targets. Analysts said the No. 3 software maker is keeping costs in line and achieving reasonable sales in the midst of the recession.

Stock Charts (Year)

Oracle
Graphical chart for ORCL
Research In Motion
Graphical chart for RIMM
Oracle blamed adverse fluctuations in the currency market for much of the expected drop in software sales, saying the strengthening of the U.S. dollar will dent the change in that revenue growth by 8 percentage points.

Fiscal-second quarter net income fell to $1.29 billion from $1.3 billion. Earnings per shares after one-items were 34 cents, in line with analyst estimates. Revenue was $5.68 billion, up 6% from a year ago but off 2.6% from analyst estimates.

Research In Motion offers holiday cheer

Research In Motion's fiscal-third-quarter profit met analyst forecasts, but investors were cheered by its rosier-than-expected fourth-quarter outlook that reflects strong holiday sales of its BlackBerry smartphones even as the global economy slows.

Investors were prepared for the fiscal third-quarter results; the company had disclosed many of the details earlier.

More important was the outlook for the current fourth quarter, which includes the crucial December holiday shopping season. Research In Motion has a range of new BlackBerries on the market, while the mood for consumer and business spending is uncertain. The company has trimmed prices and benefited from heavy promotion from wireless carriers offering its products.

Research In Motion expects fourth-quarter revenue of $3.3 billion to $3.5 billion, and earnings per share of 83 to 91 cents.

Wall Street has been expecting revenue of $2.97 billion and 83 cents a share in earnings, Reuters said.

Up more than 6% right after the report came out, RIMM shares finished the after-hours session up 0.7% to $48.70 after falling 5.5% to $38.44 in regular trading.

RIM earned $396.3 million, or 69 cents a share, in the quarter, up from $370.5 million, or 65 cents, a year ago. Revenue rose 66% to $2.78 billion from $1.67 billion.

Detroit automakers halt production

The White House confirmed growing speculation within legal circles that the president and Treasury Secretary Henry M. Paulson Jr. were considering bankruptcy as part of an overall rescue package for the automobile industry.

The action would be unusual, and would require concessions by the United Automobile Workers union, suppliers, investment banks, the federal pension board, bondholders and other stakeholders in the two auto companies.

Stock Charts (Year)

General Motors
Graphical chart for GM
Ford Motor
Graphical chart for F
Under one possibility that has been discussed, the government would give G.M. and Chrysler enough financing to operate for several months. Then a government-selected overseer would bring together company executives and other representatives to map out steps that would be taken once the two companies file for Chapter 11 protection.

Earlier in the day, GM shot down a Wall Street Journal report that suggested that merger talks between GM and Chrysler have been reignited.

Automakers' troubles worsen

The automakers' cash troubles are worsening, forcing GM, Chrysler and Ford to halt production at many or all of their plants to conserve cash.

Chrysler late Wednesday said it will halt all production, beginning Friday, for at least a month in an effort to save costs while it awaits a decision from the White House on billions in federal loans.

Chrysler normally suspends operations from Dec. 24 to Jan. 5, but the additional weeks are worrisome, said one analyst.

"This is definitely out of the ordinary," Edmunds.com analyst Jesse Toprak told MarketWatch.com. "I've never seen this kind of shutdown for this long."

Employees will not be asked to come back to work until at least Jan. 19, the company said. A total of 46,000 employees will be affected by the shutdown, but they will receive about 95% of their pay through unemployment and contributions from Chrysler, the company said.

In related news, Chrysler's financing arm may have to temporarily halt making loans that auto dealers use to buy vehicles for their lots. Dealers have grown worried about a possible bankruptcy at Chrysler and have pulled more than $1.5 billion from the fund since July.

FedEx execs get pay cuts

FedEx (FDX, news, msgs) this morning said it will cut salaries and halt hiring in an effort to cut costs.

FedEx CEO Frederick Smith will receive a 20% reduction in his salary, and other top executives' paychecks will shrink between 7.5% and 10%.

The company also posted fiscal-second-quarter earnings of $493 million, or $1.58 per share -- up slightly from the $479 million, or $1.54 per share, FedEx earned in the same period last year, and in line with the consensus estimate.

Earnings are ""increasingly being challenged by some of the worst economic conditions in the company's 35-year operating history," Smith said in a statement. FedEx expects "very difficult" conditions in 2009.

FedEx shares were off 2.1% to $62.60.

Jobless claims dip

The number of Americans filing for initial unemployment benefits fell by 21,000 to 554,000 last week, the Labor Department reported this morning. Initial jobless claims are up a whopping 59% from the same week a year ago, however -- an indication of how ugly the U.S. jobs picture has become.

Continuing claims for jobless benefits fell 47,000 to 4.38 million -- up 66% from year-ago levels.

In other economic news today, a report on manufacturing in the Philadelphia region showed that the sector was contracting this month, but the reading was better than economists had expected.

The Philly Fed index came in at a reading of negative 32.9, an improvement from the reading of negative 39.3 in November. The November reading was the worst since October 1990. Economists had expected the index to fall to negative 42. Negative readings indicate contraction in the industry.

The economy isn't likely to pick up in the near term, according to the Conference Board's report on leading economic indicators.

The research organization's index of leading economic indicators fell 0.4% in November; October's decline was revised to 0.9%.

Mary Schapiro to head SEC

President-elect Barack Obama has named a veteran of the Securities and Exchange Commission to replace Christopher Cox as chairman.

Mary Schapiro, a former SEC commissioner, a former chairman of the National Association of Securities Dealers and current chief executive officer of the Financial Industry Regulatory Authority, would be the first woman to head the agency, which was created in the 1930s during the Great Depression.

The SEC has been under fire for failing to act on previous allegations against Bernard Madoff, who was arrested last week on charges of fraud in an alleged $50 billion Ponzi scheme.

The SEC had been tipped off about Madoff's scheme and, in 2006, had opened an investigation into whether Madoff was running a Ponzi scheme, according to The Wall Street Journal. But the agency closed the case after Madoff agreed to register his investment advisory business and disclose more information, the report said.

Andrew Rosenbaum contributed to this report.

Short hits from the markets -- New York close
 Thur.Wed.Chg.Month chg.YTD chg.
Treasurys
13-week Treasury bill0.005%0.005%0.000-75.00%-99.84%
5-year Treasury note yield1.266%1.352%-0.086-34.88%-63.36%
10-year Treasury note yield2.074%2.190%-0.116-29.86%-48.60%
30-year Treasury bond yield2.546%2.665%-0.119-26.99%-42.90%
Currencies
U.S. Dollar Index81.00080.0750.925-6.58%5.61%
British pound in dollars$1.5049$1.5521-0.0472-2.18%-24.35%
Dollar in British pounds £0.6645£0.64430.02022.23%32.19%
Euro in dollars$1.4265$1.4413-0.014812.38%-2.40%
Dollar in euros€ 0.7010€ 0.69380.0072-11.02%2.46%
Dollar in yen 89.9087.332.57-5.95%-19.62%
Canadian dollar in U.S. dollars$0.834$0.839-$0.00553.18%-16.04%
U.S. dollar in Canadian dollars$1.200$1.192$0.0087-3.08%19.11%
Commodities
Gold$860.60$868.50-$7.905.08%2.70%
Copper$1.3015$1.3725-$0.07-21.10%-57.20%
Silver$11.1200$11.4200-$0.308.70%-25.47%
Corn$3.8950$3.8950$0.0011.44%-14.49%
Crude oil (NYMEX) (per barrel)$36.22$40.06-$3.84-33.47%-62.26%

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