Bears Take Charge; Dow Sinks 514 Points
Updated from 4:05 p.m. EDT
Stocks in New York got severely pummeled Wednesday, as a spate of gloomy
forecasts offered investors little hope of avoiding a painful global slowdown.
The three major indices spent the entire day in negative territory, but a late-afternoon selloff sent them even deeper into the red. The
Dow Jones Industrial Average
dropped 514.45 points, or 5.7%, to 8519.21, and the
S&P 500
lost 58.26 points, or 6.1%, to 896.79. The
Nasdaq
stumbled 80.83 points, or 4.8%, to 1615.75. Every one of the Dow's 30 component stocks registered a loss.
Investors are having difficulty finding sectors that will lead a new rally, wrote Robert Pavlik, chief investment officer at Oaktree Asset Management. He wrote that as traders remain on the sidelines trying to find winners, volume has fallen substantially, causing an increase in volatility. "Because of this uncertainty, it brings into question whether or not we go back and retest the lows of October 10," he wrote.
In an interview, Pavlik said that
could also be responsible for the continued decline in stocks, commodities and other liquid investments that might otherwise be holding up. He said that as the market continues to pull back, fund managers have to raise cash as they face margin calls. "It's very hard to gauge when the bottom will come from all this."
Peter Cardillo, chief market economist at Avalon Partners, said earnings have been mixed, but forward guidance is weighing on investor sentiment. "I think it's just one more excuse in a bear market," he said.
Cardillo said that stocks need a new catalyst to turn sentiment. Investors may take heart if the settlement of credit-default swaps tied to bankrupt brokerage
Lehman Brothers
are settled without major defaults. "Obviously this market is way oversold. All we're seeing here is a market that continues to feel the weight of uncertainty."
Following Tuesday's close, traders heard from some big technology names.
(AAPL) - Get Report
reported a 26% increase in third-quarter earnings. Strong iPhone sales contributed to the improvement, but the company worked to temper expectations for the fourth quarter on a slowing economy. Shares climbed 5.9% to $96.87.
Internet portal
(YHOO)
also announced third-quarter earnings, saying profit declined 64%. The company also said it would cut at least 1,500 jobs this year. It added 2.7% to $12.39.
Apple and Yahoo! were among the few gainers on a day marked by widespread selling.
Ahead of Wednesday's trading, investors were shoveling through a fresh pile of earnings statements. Telecommunications service provider
(T) - Get Report
announced that profit grew 5.5% year over year but fell short of analysts' expectations. The stock lost 7.6% to $23.78.
On the industrial side, aircraft maker
(BA) - Get Report
saw income shrink 38% year over year, while rival
Northrop Grumman
(NOC) - Get Report
reported increasing net income and raised guidance. Boeing stumbled 7.5% to $43.03, while Northrop Grumman tacked on 2.4% to $45.91.
In the energy patch, oil-services company
Baker Hughes
(BHI)
said its profit increased 10% year over year, but warned of a slowdown in demand for 2009. Integrated oil firm
ConocoPhillips
(COP) - Get Report
delivered an earnings beat on increasing revenue. Baker Hughes plummeted 22% to $30.35, and ConocoPhillips slipped 9.1% to $49.06.
As for financial firms' results, regional bank
(WB) - Get Report
swung to a $24 billion loss for the third quarter. Shares lost 6.2% to $5.71.
Fast-food provider
McDonald's
(MCD) - Get Report
, meanwhile, reported results that beat the Street's estimates. The stock ticked down 1.7% to $54.18.
Cigarette maker
(PM) - Get Report
announced rising profit on increasing revenue and organic growth, but shares sold 3.2% lower to $40.83.
Several pharmaceutical names also revealed third-quarter results.
(MRK) - Get Report
reported in-line earnings and said it would reduce its workforce by 12%.
(WYE)
showed a slight decline in profit.
Merck lost 6.5% to $28.01, and Wyeth tumbled 11% to $31.10.
Away from earnings, credit markets showed continuing signs of improvement. Three-month dollar Libor, a measure of the rate banks charge one another for large loans, declined 29 basis points to 3.54%. The overnight rate dropped to 1.12%.
"While the recent credit crisis is slowly correcting, investors should stay mindful that we're still in a weakening economic environment," wrote Pavlik of Oaktree. "But even more worrisome is the fact that the recent economic reports do not reflect the changes in consumer and business spending brought on by the recent weakness in the stock market and the freeze in the credit markets."
H&R Block
(HRB) - Get Report
announced that it would sell stock to institutional investors to raise $145 million in fresh capital. Shares gave back 5.7% to $16.94.
On a day that was rather light on economic data, the Energy Information Administration reported that crude-oil inventories increased by 3.2 million barrels in the week ended Oct. 18.
The Mortgage Bankers Association reported that its index of demand for homes and to refinance mortgages declined 17% for the week ended Oct. 17.
In commodities, crude oil lost $5.43 to settle at $66.75 a barrel. Gold gave back $32.80 to close at $735.20 an ounce.
Longer-dated U.S. Treasury securities were rising in price. The 10-year note was up 1-3/32, yielding 3.61%. The 30-year was gaining 2-15/32 to yield 4.08%. The dollar was logging massive gains vs. the euro and pound but weaker against the yen. The dollar index, which measures the dollar against a basket of rival currencies, was surging 1.8% to 85.51.
Overseas, European indices, including the FTSE in London and the DAX in Frankfurt, were mainly trading lower.
also finished lower.
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