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Feeble Data, Credit Fears Sink Stocks

Sarina Penn

Stocks in the U.S. sank Wednesday as traders digested weak economic data and more signs of credit-related troubles on the corporate front.

The Dow Jones Industrial Average surrendered 109.74 points, or 0.9%, to finish at 12,422.86. The S&P 500 gave up 11.86 points, or 0.9%, to 1341.13, and the Nasdaq Composite dropped 16.69 points, or 0.7%, to 2324.36.

Weighing on the market was a report from the Commerce Department that orders for durable goods dropped 1.7% in February -- an improvement from the prior month's revised 4.7% decline, but far short of the 0.7% climb that economists were expecting. Excluding transportation goods, durables orders sank 2.6%, missing the forecast by a wide margin and more than doubling from January's decline.

Elsewhere, the Census Bureau said new-home sales in February fell to an annualized rate of 590,000, a 13-year low. The figure, slightly better than economists' expectation of 570,000, was down 1.8% from revised January numbers and about 30% below February 2007.

"This was a splash of cold water in everybody's face," said Charles Rotblut, senior market analyst with Zacks Investment Research. He pointed out that weak figures come only two days after investors took encouragement from a positive report on existing-home sales.

Peter Cardillo, chief market analyst with Avalon Partners, believes investors are cashing in following the major averages' substantial rally over the past week, and said the sour economic data are only helping with the downward momentum.

The market's breadth was poor. Around 3.91 billion shares traded on the New York Stock Exchange, as decliners topped advancers 3 to 2. Some 1.86 billion shares traded on the Nasdaq, with losers outpacing winners by a 5 to 4 margin.

With the soft economic figures, odds increased for another big interest-rate cute. Futures were pricing in a 44% chance -- up 16 percentage points from yesterday -- that the Federal Reserve will lower the fed funds target rate by 50 basis points during its next meeting at the end of April. The odds for a quarter-point cut are currently at 100%.

In an effort to spur banks into lending one another more money, the Fed has already brought the overnight bank lending rate down three percentage points since September, most recently with a 75-basis-point easing last week. The rate currently stands at 2.25%.

In a speech Wednesday, Treasury Secretary Henry Paulson recommended looking into establishing federal regulation for investment banks, especially given the recent collapse of Bear Stearns (BSC Quote) and the Fed's follow-up measure to open its discount lending window to investment banks for at least the next six months.

On the corporate side, more credit-market issues emerged. Media conglomerate Clear Channel (CCU Quote) dropped 17.3% after The Wall Street Journal reported that its proposed $19.5 billion takeout deal by private equity firms is close to collapsing because of the buyers' trouble with financing.

Dow component Citigroup (C Quote) slid 5.6% after Oppenheimer deepened its fiscal first-quarter loss estimate on the banking giant, based on the possibility for big writedowns on leveraged loans and collateralized debt obligations. Analyst Meredith Whitney also projected Citi will post a full-year loss of 15 cents a share, compared with her prior expectation of a 75-cent profit.

Oppenheimer also lowered its first-quarter and 2008 numbers on Bank of America (BAC Quote), JPMorgan Chase (JPM Quote) and Wachovia (WB Quote). Shares lost between 3% and 7%.

Elsewhere in the financial space, Deutsche Bank (DB Quote) said that the deteriorating economy and possible further subprime writedowns could prevent it from hitting its own pretax profit guidance for 2008. Shares closed off 1.1%.

Also, two Michigan pension funds have filed for a temporary restraining order against JPMorgan's proposed $10-a-share takeout of Bear Stearns while suing the latter for accepting what it considers to be a "grossly inadequate" offer, according to the Journal.

In the tech sector, Motorola (MOT Quote), under pressure from activist investor Carl Icahn, said it has begun to split off its cell-phone business into a separate company. Motorola first announced that possibility in January. Shares rose 2.7%.

Jabil Circuit (JBL Quote) sank 18.4% after setting current-quarter earnings guidance far below Wall Street's estimate. The electronics manufacturer beat estimates for the fiscal second quarter, but still was hit with downgrades at both JPMorgan and Credit Suisse.

As for commodities, crude oil jumped $4.68 to $105.90 a barrel after the U.S. Energy Information Administration reported that last week's crude stockpiles were flat with the prior week at 311.8 million barrels. Oil-and-gas giants Exxon (XOM Quote) and Chevron (CVX Quote) were among few upward moving Dow components, respectively tacking on 1.2% and 0.5%.

Gold futures climbed $14.20 to $949.20 an ounce, helping lift miners Barrick Gold (ABX Quote), Goldcorp (GG Quote) and Newmont Mining (NEM Quote) by 1.3% or more.

Treasury prices were mixed. The 10-year note added 6/32 in price to yield 3.48%, but the 30-year bond was off 17/32 in price, yielding 4.33%.

The major overseas markets were mostly lower. Among Asian bourses, the Nikkei 225 in Tokyo slipped 0.3% to 12,707, though Hong Kong's Hang Seng climbed 0.7%. In Europe, London's FTSE 100, the Paris Cac, and Germany's Xetra Dax each fell 0.3% or more.