Stocks Slump on Poor Jobs, Earnings News

Major indexes stumbled Wednesday after a worse than expected ADP payrolls report and negative news from Alcoa, Intel, and Time Warner

U.S. stocks closed sharply lower Wednesday. Profit warnings from Intel (INTC) and Time Warner (TWX) gave investors reasons to sell into recent market gains, as did an ADP survey showing a 693,000 plunge in U.S. private sector payrolls in December.

Additional bad news on the jobs front is expected from Thursday's weekly initial jobless claims and Friday's December nonfarm payrolls data.

Sentiment was also hurt Wednesday by news that Alcoa (AA) announced layoffs and production cutbacks.

Also, the Congressional Budget Office said the federal budget deficit will hit $1.2 trillion for the 2009 budget year.

Meanwhile, the ABC/Washington Post Post Consumer Comfort index was flat, while the Mortgage bankers Assn. reported that mortgage applications fell in the past week.

Bonds were lower. The dollar index, which rallied the previous two sessions, fell. Gold futures were lower in volatile trading. Crude oil futures, and shares of energy companies, fell after weekly U.S. inventory data showed a rise in energy stockpiles.

On Wednesday, the 30-stock Dow Jones industrial average finished lower by 245.50 points, or 2.72%, at 8,769.70. The broader S&P 500 index shed 28.05 points, or 3.0%, to 906.65. The tech-heavy Nasdaq composite index fell 53.32 points, or 3.23%, to 1,599.06.

On the New York Stock Exchange, 25 stocks were lower in price for every six that advanced. The ratio on the Nasdaq was 20-7 negative.

ADP reported that its survey of U.S. payrolls showed a drop of 693,000 in December, much worse than the 475,000 drop expected by the consensus for Friday's payroll report from the Bureau of Labor Statistics. Although the ADP survey has often been wide of the mark, it still has some predictive value, according to S&P Economics, and suggests Friday's report may be worse than the disaster already expected.

The November ADP number was revised to show a drop of 476,000, compared with the BLS preliminary estimate of 586,000. Most of the December job loss was in the service sector (down 473,000), consistent with expectations of weak retail employment in the payroll report.

"The report is bad news for the market and the economy, suggesting conditions are worsening faster than we had expected," wrote S&P senior economist Beth Ann Bovino Wednesday.

The federal budget deficit will hit an unparalleled $1.2 trillion for the 2009 budget year, according to a Capitol Hill aide briefed on new Congressional Budget office figures. The $1.19 trillion 2009 figure shatters the previous record of $455 billion, set only last year. It also represents about 8% of the size of the economy, which is higher than the deficits of the 1980s. The 2009 budget year began last Oct. 1. The AP said the aide says the CBO also sees a $703 billion deficit for 2010. The dismal figures come a day after President-elect Barack Obama warned of "trillion-dollar deficits for years to come."

Treasury Secretary Henry Paulson said Fed purchases of GSE debt is reducing rates and may lure in new home buyers. Yet he sees government support for almost all new mortgages as unsustainable in the long-term, also suggesting that government backing for GSEs must ultimately be explicit or non-existent, not in between. Obama could temporarily guarantee GSE directly to help cut mortgage rates, he said, while permanent nationalization is sub-optimal. GSEs taking the form of a public-utility-like mortgage guarantor may resolve inherent conflicts as well, backing debt but with no portfolio of their own.

February West Texas Intermediate crude oil futures fell to $45.36 per barrel, down $3.22 on the day, following the EIA's weekly inventory data, which showed a 6.7 million barrel rise in crude-oil stocks. Wall Street had been expecting a 1.0 million barrel increase. Meanwhile, gasoline supplies, seen up 1.0 million barrels, actually rose 3.3 million barrels, while distillate stocks were up 1.8 million barrels, vs. expectations for a flat outcome.

Standard & Poor's said Wednesday that 288 of the approximately 7,000 publicly owned companies that report dividend information to the financial research and information provider decreased their dividend during the fourth quarter of 2008 -- a 444% increase from the 52 issues that decreased their dividend during the fourth quarter of 2007. Reported dividend increases fell 40.0% to 475 from the 792 reported during the fourth quarter of 2007. S&P said it was the worst quarter for dividends since it started keeping dividend records in 1956.