Economic Unease Drags Wall Street to Losses
Updated from 3:25 p.m. EST
Stocks in New York lost their early-morning mojo and finished with losses Monday, as buying interest spurred by China's economic stimulus package gave way to worries over a grim near-term future for U.S. companies.
The
Dow Jones Industrial Average
, up as much as 215 points early on, ended the day down 73.27 points, or 0.8%, at 8870.54. The
S&P 500
lost 11.78 points, or 1.3%, to 919.21, and the
Nasdaq
shed 30.66 points, or 1.9%, to 1616.74.
Financial firms were in focus as Monday's session got under way. Troubled insurer
(AIG) - Get Report
received a revamped $150 billion bailout package from the U.S. government and reported a third-quarter loss of $24.47 billion, or $9.05 a share, compared with year-earlier net income of $3.09 billion, or $1.19 a share. AIG stock gained 8.1% to $2.28.
Other financial stocks had a rougher go of it.
(C) - Get Report
is in talks to acquire a bank, according to a report in
The Wall Street Journal
. Earlier this year, Citi had been a suitor to
Wachovia
(WB) - Get Report
, only to have its offer trumped by
Wells Fargo
(WFC) - Get Report
.
Citi shares slipped 5.2% to $11.21, Wachovia edged down 1.6% to $5.48 and Wells Fargo gave back 3% to $28.62.
(BAC) - Get Report
, meanwhile, said in a regulatory filing that it was taking on $16.6 billion in
Countrywide Financial's
debt. BofA had acquired Countrywide on July 1 for $4 billion. Shares skidded 4.9% to $19.48.
Shares of
Goldman Sachs
(GS) - Get Report
fell 8.5% to $71.21 following a Barclays Capital analyst prediction that the company would lose $2.50 a share in the quarter ending Nov. 30.
In other
,
General Motors
(GM) - Get Report
suffered a Deutsche Bank downgrade to sell, and the bank's analysts cut the automaker's share price target to $0 from $4. Barclays analysts moved their price target to $1. On Friday, GM reported a $2.5 billion loss and a rapidly declining cash-flow level, spurring speculation that the company will need government assistance to avoid bankruptcy. Shares plummeted 23% to $3.36.
Credit markets remained a concern, as the Group of 20 finance ministers and central governors on Sunday released a statement calling for additional interest-rate cuts from central banks.
Three-month dollar Libor, a measure of the rates banks charge one another for large loans, dropped 6 basis points to 2.24%. Overnight Libor edged up 2 basis points to 0.35%.
"We're going to look back in three months and six months and realize the federal government took extraordinary amounts of action," said Gary Flam, portfolio manager at Bel Air Investment Advisors. He said that taken all together, the
Federal Reserve's
interest-rate cuts and other government actions were significant in restoring confidence, but "this financial crisis does have economic implications. People, businesses, governments going forward are going to have reduced leverage." He said he does not see a swift recovery and expects the economy to continue to stagnate into the first and second quarters of 2009.
Statements from several firms reflected the tough economic environment. Electronics retailer
(CC) - Get Report
filed for Chapter 11 bankruptcy protection Monday. Shares were in free fall, down 56% to 11 cents.
Meanwhile, shipping company
Deutsche Post
said it would cut 9,500 jobs and reduce U.S. operations of its
DHL Express
business.
On the
side, financial conglomerate
Berkshire Hathaway
(BRK.A) - Get Report
announced a 77% decline in third-quarter profit that owed in part to unrealized losses on derivatives and other securities. The stock tumbled 2.7% to $109,999.
Telecom firm
Nortel Networks
( NT) announced a third-quarter loss and said it would cut its headcount by 1,300, sending shares down 19% to 95 cents.
Meanwhile, mortgage company
Fannie Mae
( FNM) reported a $29 billion loss for the third quarter, and its stock ticked down 3% to 72 cents.
Meat products producer
Tyson Foods
(TSN) - Get Report
announced an increase in third-quarter earnings, and fast-food concern
McDonald's
(MCD) - Get Report
said global same-store sales increased 8.2% in October. Tyson lost 10% to $6.69, while McDonald's added 1.8% to $56.48.
Beyond earnings, energy company
(NRG) - Get Report
late Sunday rebuffed a $6.08 billion buyout offer from
Exelon
(EXC) - Get Report
. NRG dropped 5.5% to $22.56, and Exelon slipped 6.2% to $50.49.
Agricultural firm
Bunge
(BG) - Get Report
formally did away with plans for a $4.8 billion merger with
Corn Products International
( CPO). Bunge shares were unchanged at $44.22, and Corn Products edged down 1.3% to $24.32.
closed higher Monday following China's announcement of a $586 billion stimulus package to bolster consumer and business confidence. European indices, including the FTSE in London and the DAX in Frankfurt, also were marking gains.
Although China's initiative to bolster its economy has given the U.S. market a boost in early trading, such a decision calls into question the theory that China could continue to grow even as other economies suffer a downturn, said Phil Flynn, vice president and senior market analyst at Alaron Trading. "A few months ago, the biggest concern about China and the government was getting the economy to slow down." He said that the stimulus package "probably signals that things in China are probably a lot worse than people have feared."
Flynn said that the market was behaving as though China's stimulus package was a short-term bullish event, but he also said that the infrastructure buildout undertaken by the package is a longer-term plan, and the news is actually bearish for the short term. "I think what's going to happen is that the excitement is probably going to wear off," he said.
Looking at commodities, crude oil added $1.37 to settle at $62.41 a barrel. Gold rose $12.30 to close at $746.50 an ounce.
Longer-dated U.S. Treasury securities were rising in price. The 10-year note was adding 13/32 to yield 3.74%, and the 30-year was up 1-13/32, yielding 4.19%. The dollar was gaining on the euro but falling vs. the pound and yen.
