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Stocks Slide on Layoffs, Weak Retail Sales

Mike Taylor

After fluctuating throughout much of Thursday's session, stocks on Wall Street took an afternoon dive as a slew of big-name companies announced layoffs, many retailers posted weak November same-store sales and the automakers appeared before Congress in search of a government bailout.

The Dow Jones Industrial Average was falling 266 points to 8325, and the S&P 500 was down 32 points to 839. The Nasdaq slipped 59 points to 1433.

The automakers were again in focus on Thursday. Earlier in the week, General Motors (GM Quote), Ford (F Quote) and Chrysler headed to Capitol Hill to seek government help as they navigate a precarious market climate. On Thursday, the CEOs of the Big Three once again were testifying before Congress about potential bailout legislation.

The Wall Street Journal reported that the Federal Reserve may refuse to lend directly to the automakers, a decision that would hand the companies' futures over to Congress and the Bush administration.

Layoffs and salary reductions also were dominating the day's early headlines. Executives at Citigroup (C Quote), along with director and senior adviser Robert Rubin, were willing to go without bonuses this year, according to a report by the Financial Times.

Swiss bank Credit Suisse (CS Quote) announced plans to cut 5,300 jobs and said it expects to report a $2.5 billion fourth-quarter loss.

In other financial-sector news, The Wall Street Journal reported that credit card company Capital One (COF Quote) intends to buy Chevy Chase Bank for $520 million in a cash-and-stock deal.

The bout of layoffs and tempered guidance was not confined to the financials. Telecom company AT&T (T Quote) announced workforce reductions of 12,000, or about 4% of its employees, while DuPont (DD Quote) set plans to cut 2,500 workers.

"I'm not surprised," said Fred Dickson, chief market analyst at DA Davidson. "Given the depth of the recession, we're just going to see more of the same over the next three to six months." He also said that AT&T's planned layoffs, at 4%, weren't shockingly large, however. "In a given year, that may be close to a normal turnover amount anyway."

Software firm Adobe Systems (ADBE Quote) reported preliminary fourth-quarter results that were ahead of expectations, but also announced plans for an 8% reduction in headcount.

Media concern Viacom (VIA Quote) also announced job cuts and said it would put a raise freeze on some senior-level positions.

In the pharmaceutical space, Merck (MRK Quote) reaffirmed its 2008 earnings projections but projected 2009 results would fall short of analysts' current estimates.

Homebuilder Toll Brothers (TOL Quote) said its fourth-quarter loss narrowed year over year and said its revenue in the coming year would fall substantially from current levels.

In one bright spot, retail giant Wal-Mart (WMT Quote) announced its same-store sales rose 3.4% in November.

Across the board, however, the November same-store sales picture was less encouraging. Costco (COST Quote), Limited (LTD Quote) and Pacific Sunwear (PSUN Quote) were among companies to announce slackening sales.

Bloomberg reported that management at GM and Chrysler were contemplating a prearranged bankruptcy as a means to get government funds.

Turning to economic data, the Labor Department said jobless claims for the week ended Nov. 29 fell 21,000 to 509,000. The result was better than economists' forecast of 540,000 claims for the week. Separately, the Census Bureau's October read on factory orders showed a 5.1% decline, a larger drop than the 4% consensus estimate.

Speaking in Washington, Federal Reserve Chairman Ben Bernanke said that the government needs to take further steps to stop home foreclosures. He said that one option is for the government to buy troubled mortgage securities, and another is for federal agencies to help shoulder the costs of reductions in borrowers' monthly payments.

As the financial crisis was felt overseas, the Bank of England cut its key interest rate by one percentage point to 2%, and the European Central Bank reduced its rate to 2.5% from 3.25%. France also announced a $33 billion economic stimulus plan.

Looking at commodities, crude oil was down $2.18 to $44.61 a barrel. Gold was gaining $2.10 to $772.60 an ounce.

Phil Flynn, vice president and energy analyst at Alaron Trading, said that previous growth in demand for oil had been fueled by cheap credit. "With the global slowdown and the unavailability of credit, it's going to be very difficult to maintain those price levels," he said. "Don't be surprised to see $35 a barrel. ... We could be in a new era of lower energy prices for years to come."

He said that after investors realized that the developing world's growth was not insulated from credit troubles among developed countries, "We've gone from running out of oil to having an oil glut. We have more oil than we know what to do with." Flynn said there will eventually be another boom cycle for oil, but it's years away.

Longer-dated U.S. Treasury securities were rising in price. The 10-year note was up 10/32, yielding 2.62%, and the 30-year was adding 18/32 to yield 3.14%. The dollar was losing ground against its major foreign competitors.

Abroad, European exchanges, including the FTSE in London and the DAX in Frankfurt, were trading lower. In Asia, Japan's Nikkei and Hong Kong's Hang Seng finished on the downside.