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U.S. stocks closed sharply, broadly lower Wednesday in active trading. Major indexes declined 2%-3%, weighed down by profit taking on fresh signs of economic weakness and by secondary equity offerings at MGM Mirage (MGM) and many other companies.
On Wednesday, the 30-stock Dow Jones industrial average finished lower by 184.22 points, or 2.17%, at 8,284.89. The broader S&P 500 index fell 24.43 points, or 2.69%, to 883.92. The tech-heavy Nasdaq composite index shed 51.73 points, or 3.02%, to 1,664.19. On the New York Stock Exchange, 27 stocks were lower in price for every three that advanced. Nasdaq breadth was 23-4 negative.
Treasuries were higher. The dollar index was higher. Gold futures were up. Oil futures were lower after the release of weekly U.S. inventory data.
The market appeared poised for a correction after a nine-week rally.
Traders also eyed a decline in April retail sales and larger than expected increases in import and export prices. A report showing a 1.0% decline in March business inventories was close to market expectations. The data dampened investor optimism the U.S. recession was leveling off.
Investors were also pondering press reports that the Obama administration is seeking to change executive pay in the financial services industry.
The European Commission fined Intel a record €1.06 billion (US$1.45 billion) for abusing its dominance in the market for computer chips to exclude Advanced Micro Devices (AMD), which is Intel's only serious rival. According to a New York Times report, EU competition commissioner Neelie Kroes said the penalty against Intel, the world's largest chip maker, was justified because the company had skewed competition and robbed consumers of choice. Kroes said Intel "used illegal anticompetitive practices to exclude its only competitor and reduce consumers' choice and the whole story is about consumers." She also ordered Intel to cease offering rebates to computer makers that had helped it maintain a share of about 80% of the market for microchip sales and blocked AMD from increasing its share beyond about 20% of that market.
Intel had no immediate comment, but antitrust experts have said Intel would almost certainly appeal both the fine and orders to change its business practices to the European Court of First Instance, which is the trade bloc's second-highest tribunal.
Shares of Intel were flat Wednesday morning, while AMD shares moved higher.
The Wall Street Journal reports the Obama administration has begun serious talks about how it can change compensation practices across the financial-services industry, including at companies that did not receive federal bailout money, according to people familiar with the matter. The initiative, which is in its early stages, is part of an ambitious and likely controversial effort to broadly address the way financial companies pay employees and executives, including an attempt to more closely align pay with long-term performance.
Administration and regulatory officials are looking at various options, including using the Federal Reserve's supervisory powers, the power of the SEC and moral suasion. Government officials said their effort, which is just beginning, isn't aimed at setting pay or establishing detailed rules.
The Associated Press reports Treasury Secretary Timothy Geithner said he will propose legislation to create a systemic risk fund funded by large financial institutions to cover losses if those companies fail. "Our judgment is that it needs to be a separate solution where the burden of funding ... (is) borne by the large institutions in a level proportionate to their size," he told the annual meeting of the Independent Community Bankers of America. He also said the administration will use TARP bailout money repaid by large banks to support additional capital infusions for smaller banks.
In economic news Wednesday, U.S. business inventories fell 1.0%, while sales declined 1.6% in March. February's 1.3% slide was revised to -1.4%, while the 0.2% increase in sales was revised down to unchanged. Retailer inventories declined 0.7% after a 1.2% drop in February.
U.S. retail sales fell 0.4% in April, while the ex-auto component dropped 0.5%. March's 1.1% decline in the headline figure was revised down to -1.3%, though February's 0.3% was revised up to 0.4%. The 0.9% decline for the ex-auto figure in March was revised down to -1.2%%, while February's 1.0% gain was revised up to 1.1%. The data were weaker than expected.
Sales excluding gas station sales, building materials, and autos dipped 0.3% last month. Motor vehicles and parts sales inched up 0.2% in April. Gas station sales fell 2.3%. Furniture sales slid 0.5% while building materials rose 0.3%. Clothing sales dipped 0.5%. Sales of health and personal care items rose 0.4%.
"The retail sales decline came as a particular disappointment when measured against growing recovery optimism and, set against the rebound in energy prices, has sown some fresh doubts about the consumption outlook," says Action Economics.
U.S. April import prices jumped 1.6%, while export prices edged up 0.5%. March's 0.5% increase in import prices was revised down to 0.2%. The 0.6% decline in March export prices was revised down to -0.7% (Feb -0.3%). Petroleum prices were up 15.4% after a better than 13% cumulative gain in the previous two months.
Excluding petroleum, import prices were down 0.4%. The price of imported foods dipped 0.1%. Industrial supplies prices climbed 5.4%, while capital goods prices inched up 0.1%. Import prices with China fell 0.5%.
Among other companies in the news Wednesday, MGM Mirage said it has commenced an underwritten public offering of 81 million common shares. It noted that Tracinda Corp., the holder of about 53.8% of MGM's common intends to buy from the underwriter about 8.1 million shares sold in the offering. MGM also plans to make a private placement of $1.5 billion in aggregate principal amount of senior secured notes in two tranches due 2014 and 2017, respectively.
R.R. Donnelley (RRD)
said that it had submitted a written indication of interest to acquire all or substantially all of the assets and properties of Quebecor World Inc., and further indicated to Quebecor that it was prepared to move expediently to a legally binding purchase agreement, pending the completion of due diligence.
Frontier Communications (FTR) signed a definitive agreement with Verizon Communications (VZ) under which Frontier will acquire approximately 4.8 million access lines from Verizon. Frontier said the deal will create the largest pure rural communications services provider and the fifth largest U.S. incumbent local exchange carrier (ILEC) with more than 7 million access lines and 8.6 million voice and broadband connections.
In earnings news, Freddie Mac (FRE) posted a $3.14 first-quarter loss per share vs. a fourth-quarter loss of $7.37. The mortgage-finance outfit said it recorded a provision for credit losses of $8.8 billion in the 2009 first quarter, vs. $7.0 billion in the 2008 fourth quarter, reflecting continued increases in the number of delinquent loans, delinquency rates and estimated severity of losses driven by ongoing deterioration of housing and credit market conditions. The company expects coming quarters to be difficult, but sees preliminary signs of slowing in home price declines.
Applied Materials (AMAT) posted a $0.10 second-quarter non-GAAP loss per share vs. $0.26 EPS on a 53% sales decline.
Macy's posted a $0.16 non-GAAP first-quarter loss per share vs. $0.02 EPS on 9% lower same-store sales and 9.5% lower total sales. The company maintained its its fiscal 2010 guidance for $0.40-$0.55 EPS, excluding division consolidation costs, on 6%-8% lower sales.
Liz Claiborne (LIZ) posted a $0.37 first-quarter adjusted loss from continuing operations vs. $0.33 EPS on 17% sales decline. The company still sees same-store sales (SSS) declines in the 15%-25% range in Juicy Couture, Lucky Brand, and Kate Spade brands and a high-single-digit SSS decline in its Mexx brand through the third quarter of 2009, with fourth-quarter SSS flattening as it becomes a year since the sharp downturn began in September, 2008.