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Stocks plunge for third straight session
2008-11-12
NEW YORK - An increasingly despondent Wall Street fell for the third straight session Wednesday as investors absorbed another series of dismal corporate reports and news that the government won't buy banks' soured mortgage assets after all. The Dow Jones industrials dropped more than 410 points, and all the major indexes lost more than 4 percent. Muzi.com News 10082959-1 (muzi.com)The stock market has lost about $1 trillion over the past three days, according to the Dow Jones Wilshire 5000 index, which reflects the value of nearly all U.S. stocks. Muzi.com News 10082959-2 (muzi.com) The market started the day falling on more signs that companies are being hurt by a severe pullback in consumer spending. Macy's Inc. said it lost $44 million in the third quarter as sales at the department store retailer fell more than 7 percent. And consumer electronics retailer Best Buy Co. slashed its fiscal 2009 guidance on fears that consumer spending will erode even further. Muzi.com News 10082959-3 (muzi.com) Meanwhile, Morgan Stanley, suffering from the ongoing losses on Wall Street, outlined plans to cut 10 percent of staff in its institutional securities group -- its biggest business that covers everything from investment banking to stock trading. Muzi.com News 10082959-4 (muzi.com) More bad news came out after the market closed -- Intel Corp. lowered its fourth-quarter revenue and earnings outlook, citing a spending slowdown that is reducing demand for its computer chips. Intel's stock fell in after-hours trading, and its announcement was likely to trigger more selling across the market on Thursday. Muzi.com News 10082959-5 (muzi.com) The bleak reports, which followed disappointing news from coffee retailer Starbucks Corp. and homebuilder Toll Brothers Inc. earlier in the week, made it increasingly clear to investors that companies across the economy are suffering from the aftermath of the housing and credit crises. Muzi.com News 10082959-6 (muzi.com) "There just doesn't appear to be an end in sight to the bad news," said Anton Schutz, portfolio manager of the Burnham Financial Industries Fund and the Burnham Financial Services Fund. "The selling is relentless." Muzi.com News 10082959-7 (muzi.com) There was more pain at mid-morning, when Treasury Secretary Henry Paulson said the government's $700 billion financial rescue package won't purchase troubled assets from banks. He said that plan would have taken too much time, and that the Treasury instead will rely on buying stakes in banks and encouraging them to resume more normal lending. Muzi.com News 10082959-8 (muzi.com) While the market had been pleased by the government's decision weeks ago to buy banks' stock, investors still hoped to see the financial industry relieved of the burden of the mortgage assets whose decline in value helped set off the nation's financial crisis. His comments, which underscored the anxiety that remains about the health of the financial system, sent stocks falling further. Muzi.com News 10082959-9 (muzi.com) Analysts believe the market is in the process of retesting the intraday low hit on Oct. 10, when the blue chips fell to 7,882.50. Muzi.com News 10082959-10 (muzi.com) "We're just going through the typical process of testing and retesting," said Matt King, chief investment officer of Bell Investment Advisors. "If we can continue to build higher and higher lows, that's definitely a positive. If the Dow can build a base above 8,100 and bounce off that, we see that as a definite technical positive." Muzi.com News 10082959-11 (muzi.com) The selling accelerated in the last hour of the day, as it has done in most sessions over the past two months. Muzi.com News 10082959-12 (muzi.com) "When there is a lot of volatility, especially on a big down day, people just decide they don't want to own stocks overnight," said Ryan Detrick, senior technical strategist at Schaeffer's Investment Research. "News doesn't drive this lower, fear does. Investors will back the next morning after they see where things settled." Muzi.com News 10082959-13 (muzi.com) Late-day volatility has also been fed by hedge and mutual funds selling as investors withdraw money from the market. Muzi.com News 10082959-14 (muzi.com) The Dow shed 411.30, or 4.73 percent, to 8,282.66. It was the lowest close for the Dow since its 5 1/2-year low of 8,175.77 reached on Oct. 27. Muzi.com News 10082959-15 (muzi.com) According to the Dow Jones Wilshire 5000 index, Wednesday's paper losses amounted to about $600 billion. By that measure, the stock market has shed $9.1 trillion since the index's Oct. 9, 2007, peak. Muzi.com News 10082959-16 (muzi.com) The broader Standard & Poor's 500 index dropped 46.65, or 5.19 percent, to 852.30, and the Nasdaq composite index stumbled 81.69, or 5.17 percent, to 1,499.21. Muzi.com News 10082959-17 (muzi.com) The Russell 2000 index of smaller companies fell 29.49, or 6.11 percent, to 452.80. Muzi.com News 10082959-18 (muzi.com) Declining issues overwhelmed advancers on the New York Stock Exchange, where only 240 stocks rose while 2,869 fell. Consolidated volume came to 5.66 billion shares, up from 4.93 billion shares Tuesday. Muzi.com News 10082959-19 (muzi.com) Though Paulson's announcement marks a major shift in the original bailout plan and rattled investors, Wall Street analysts generally believe the Treasury is now on the right path. Muzi.com News 10082959-20 (muzi.com) "That's really what they should have done originally," said King. "First and foremost, we have to make sure banks are going to survive and then we can worry about lending. This is the quickest and most efficient way to do that." Muzi.com News 10082959-21 (muzi.com) "Buying bad assets doesn't do that," he said. Muzi.com News 10082959-22 (muzi.com) However, there is some concern that the bailout funds are being depleted rather quickly, said Jason O'Donnell, senior research analyst at Boenning & Scattergood. Muzi.com News 10082959-23 (muzi.com) "Investors are generally in favor of the emphasis on the capital purchase provisions," O'Donnell said. But, "we're down quickly to a small portion of total funds remaining for other purposes." Muzi.com News 10082959-24 (muzi.com) Paulson also announced a new goal for the program to support financial markets that supply consumer credit in such areas as credit card debt, auto loans and student loans. He said, "with a stronger capital base, our banks will be more confident" to support economic activity. Muzi.com News 10082959-25 (muzi.com) But investors are worried that a severe pullback in consumer spending -- which drives more than two-thirds of the U.S. economy -- will prolong a global economic downturn. Muzi.com News 10082959-26 (muzi.com) Macy's shares fell $1.04, or 11 percent, to $8.37. Best Buy shares tumbled $1.91, or 8 percent, to $21.97. Muzi.com News 10082959-27 (muzi.com) The future of the country's top automakers remained a major concern on the Street as well, as investors waited to see whether the government would put together a bailout plan for General Motors Corp., Ford Motor Co. and Chrysler. Muzi.com News 10082959-28 (muzi.com) General Motors was the only gainer among the 30 Dow stocks Wednesday, rising 16 cents, or 5.5 percent, to $3.08. Ford gained 4 cents, or 2.2 percent, to $1.84. Muzi.com News 10082959-29 (muzi.com) Morgan Stanley, which converted into a bank holding company in September, said it plans to scale back its institutional securities business before the end of the year. The layoffs it plans are in addition to a 10 percent cut made earlier this year to the group. Muzi.com News 10082959-30 (muzi.com) Morgan Stanley also plans to restructure its money management business by cutting 9 percent of the group's work force. The securities firm employs about 44,000 people worldwide. Morgan Stanley shares fell $2.14, or 15.2 percent, to $11.94. Muzi.com News 10082959-31 (muzi.com) Intel, which fell 41 cents to $13.52 during regular trading, fell to $12.56 after hours. Muzi.com News 10082959-32 (muzi.com) Meanwhile, American Express Co. is said to be seeking about $3.5 billion from the government to help boost its balance sheet, according to a report in The Wall Street Journal citing people familiar with the situation. AmEx, the No. 4 U.S. credit card issuer, won approval Monday from the Federal Reserve to become a bank holding company, which gives it the ability to grow a large deposit base and access financing from the Fed. Muzi.com News 10082959-33 (muzi.com) AmEx shares dropped $2.35, or 10.5 percent, to $20.05. Muzi.com News 10082959-34 (muzi.com) Government bond prices, which did not trade Tuesday because of Veterans Day, moved higher as investors looked for safer investments. The three-month Treasury bill's yield fell to 0.13 percent from 0.22 percent late Monday, and the yield on the benchmark 10-year Treasury note fell to 3.67 percent from 3.76 percent late Monday. Muzi.com News 10082959-35 (muzi.com) Lower yields indicate stronger demand. Muzi.com News 10082959-36 (muzi.com) Crude dropped below $57 a barrel Wednesday on the growing realization that global economic growth next year will slow more than originally feared, cutting demand for crude products such as gasoline. Light, sweet crude fell $3.50, or nearly 6 percent, to settle at $56.16 a barrel on the New York Mercantile Exchange. Muzi.com News 10082959-37 (muzi.com) The dollar was mixed against other major currencies, while gold prices dipped. Muzi.com News 10082959-38 (muzi.com) Overseas, Japan's Nikkei closed down 1.29 percent and Hong Kong Hang Seng fell 0.73 percent. In Europe, London's FTSE 100 fell 1.52 percent, Germany's DAX fell 2.96 percent, and France's CAC-40 dropped 3.07 percent. Muzi.com News 10082959-39 (muzi.com)
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