Markets & Finance

Stocks: A Pre-Holiday Plunge


Major indexes sank again Wednesday, with a burst of selling in the final hour pushing the S&P 500 index into negative territory for the year

On the day before Thanksgiving, there were two things investors could be grateful for. One was that oil didn't actually hit $100 a barrel on Wednesday. The other? The market is closed on Thursday.

Otherwise, there wasn't much to be thankful for.

In a continuation of the stock market's miserable November, major U.S. equity indexes sank once again Wednesday, with selling accelerating in the final hour of trading. A confluence of investor worries -- about how corporate profits will fare amid the housing market slowdown, deteriorating credit conditions, and higher oil prices -- continued to prompt selling. And consumer sentiment, jobless claims and leading indicators data released Wednesday did little to improve investor sentiment.

On Wednesday, the Dow Jones industrial average finished lower by 211.1 points, or 1.6%, to 12,799.04, well below the psychologically important 13,000 level. The broader S&P 500 index lost 22.93 points, or 1.59%, to 1,416.77. The index started 2007 at 1418, and is now in slightly negative territory for the year. The Nasdaq Composite was off 34.66 points, or 1.34%, to 2,562.15.

Action in the broader market was overwhelmingly negative. On the New York Stock Exchange, 24 stocks declined in price for each 9 that advanced. NASDAQ breadth was 21-9 negative.

Consumer confidence is now at its lowest level in two years. The Reuters/University of Michigan Index of Consumer Sentiment settled at 76.1 in November, down from 80.9 in October. The final reading is up one point from a preliminary reading of 75 earlier this month. Richard Curtin, the survey's director, said he expects consumer spending to sputter but not stall. However, "the primary risks reflect how low home prices will ultimately sink and how far fuel prices will ultimately climb," he said in a statement.

Many traders were betting the Federal Reserve would again need to cut interest rates. A Fed quarterly outlook report, released Tuesday, suggested the U.S. economy could be sluggish for three years. Fed funds futures markets now fully expect a quarter-point rate cut at policymakers' Dec. 11 meeting.

Bear Stearns economists said they now expect a quarter-point cut, adding that the possibility of a half-point cut can't be ruled out. "Recent conditions in financial markets would appear to play into the major downside risk to economic growth," they wrote.

The major indexes are all down more than 7% this month. J. & W. Seligman market strategist Douglas Peta thinks the stock market is finally catching the gloom that has pervaded the debt markets since the big worries about subprime mortgage losses started earlier this year. "The equity market's view of the world and the credit market's view of the world are starting to converge," Peta says.

Nonetheless, signs of a slower economy aren't showing up in some data, particularly on the jobs market. U.S. jobless claims fell 11,000 to 330,000 last week, and the four-week moving average fell slightly.

The U.S. MBA index, a measure of the mortgage market, fell 3.6% for the week ended Nov. 16. Average mortgage rate mostly held steady at 6.18% on the 30-year fixed loans.

Crude oil, meanwhile, seemed to lose steam in its drive toward the key price of $100 per barrel on Wednesday. January West Texas Intermediate crude oil futures, which hit a $99.29 high earlier in NYMEX Trading, fell 74 cents to $97.29 even though inventories fell a more than expected 1.1 million barrels last week, although the 1.143 million barrels build in stocks at Cushing, Oklahoma could be considered an offset.

Among stocks in the news Wednesday, Deere & Co. (DE) reported quarterly earnings of $1.88 per share, vs. $1.20 a year ago to end its fiscal year. Worldwide net revenue was 20% higher, and the firm expects equipment sales to increase about 25% in the first quarter of 2008. Deere shares rose 1%.

Ericsson Telephone (ERIC) said fourth quarter sales would be toward the lower end of previously release guidance. The stock fell 6.6%.

Whole Foods Market (WFMI) reported earnings of 24 cents, vs. 28 cents a year ago, despite a 8.2% rise in same-store sales, and a 35% increase in total shares.

Abercrombie & Fitch Co. (ANF) reported earnings of $1.29 per share, vs. $1.11 a year ago as same-store sales rose 1% and total sales were up 13%. The teen retailer expects earnings per share of $3.63 to $3.67 in the second half of its fiscal year.

Another retailer, Limited Brands (LTD), reported earnings of 3 cents per share, vs. 6 cents a year ago. Same-store sales were 3% lower and net sales fell 9%. It now expects same-store sales to fall in November, vs. the flat sales it had previously predicted. Also, Limited authorized the buyback of $250 million shares.

A member of the hot solar energy sector, Trina Solar (TSL) disappointed investors with lower than expected earnings of 29 cents per share despite sharply higher revenue. Shares dropped more than 20%.

European indexes were moving lower Wednesday. In London, the FTSE 100 index dropped 2.5% to 6,070.90. In Paris, the CAC 40 index fell 2.28% to 5,381.30. Germany's DAX index declined 1.47% to 7,518.42.

Asian markets also lost ground overnight. Japan's Nikkei 225 index fell 2.46% to 14,837.66. In Hong Kong, the Hang Seng index plunged 4.15% to 26,618.19.

Treasury Market

The bond market, which closed early for the Thanksgiving holiday, saw Treasury prices rise on worries of an economic slowdown and rising expectations of a Fed rate cut. Two-year notes rose 11/32 to 101-06/32 for a yield of 3.010%; 10-year notes was up 22/32 to 102 for yield of 4.010%; and the 30-year bond rose 21/32 to 108-27/32 for yield of 4.461%.

Steverman is a reporter for BusinessWeek's Investing channel.

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