By Elizabeth Stanton
Jan. 22 (Bloomberg) -- U.S. stocks fell for a fifth day after the biggest Federal Reserve interest rate cut in 23 years failed to persuade investors the economy will avert a recession.
Exxon Mobil Corp., Microsoft Corp. and Procter & Gamble Co. led declines on concern slower growth will reduce profits. The Standard & Poor's 500 Index, which dropped as much as 3.8 percent after the Fed unexpectedly reduced the benchmark lending rate by 0.75 percentage point, pared losses as Bank of America Corp. and Wells Fargo & Co. led a rally in financial shares.
The S&P 500 capped the longest losing streak in almost a year, retreating 14.69 points, or 1.1 percent, to 1,310.5. The Dow Jones Industrial Average decreased 128.11, or 1.1 percent, to 11,971.19, its first close below 12,000 since November 2006. The Nasdaq Composite Index lost 47.75, or 2 percent, to 2,292.27. About five stocks declined for every four that rose on the New York Stock Exchange.
``It's a sign the situation is worse than they had anticipated,'' said John Carey, who helps oversee about $13 billion at Pioneer Investment Management in Boston. ``This will definitely wake people up who were thinking the economy was just fine and these problems were just temporary. It's going to be a rough market for some time.''
Growing evidence that the U.S. economy is slowing has dragged down stock indexes from Tokyo to Paris by at least 20 percent from last year's highs and wiped out $7.3 trillion in global stock-market value this year.
`Increasing Downside Risks'
The Fed cited ``a weakening of the economic outlook and increasing downside risks to growth'' for its first emergency cut since 2001. Policy makers weren't scheduled to gather on rates until Jan. 29-30. Europe's benchmark index, which fell 5.7 percent yesterday during a market holiday in the U.S., climbed 2.2 percent today after the Fed's decision.
The Fed ``is playing hard defense,'' said Alan Gayle, who helps manage about $75 billion as senior investment strategist at Trusco Capital Management in Richmond, Virginia. ``The Fed is trying to assure the markets that they will do whatever they can.''
Interest-rate futures show traders expect further reduction in the target for the overnight lending rate between banks at the Fed's Jan. 30 meeting. Traders priced in 76 percent odds of a half-point cut to 3 percent and 24 percent odds of a quarter- point decrease.
Exxon, the largest U.S. crude producer, was the biggest drag on the S&P 500, falling $2.63 to $82.45. Chevron Corp., the second biggest energy company, lost $2.21 to $81.25. Crude oil dropped to a six-week low, falling 72 cents to $89.85 a barrel in New York, on concern demand will diminish in an economic slowdown.
Microsoft, the biggest software company, retreated $1.02 to $31.99. P&G, the largest consumer products company, tumbled $2.02 to $65.13.
The Nasdaq Composite today neared a so-called bear market, marked by a decline of at least 20 percent from a high. The Nasdaq has lost 19.8 percent from an almost seven-year high on Oct. 31. The S&P 500 has slumped 16 percent and the Dow average has retreated 15 percent from their Oct. 9 records.
Eight of 10 industry groups in the S&P 500 declined, led by utilities, health care and technology. Exelon Corp., the largest U.S. utility owner by market value, fell $2.73 to $73.13, leading the group to a 3.4 percent drop.
UnitedHealth Group Inc., the biggest U.S. medical insurer, fell $3.18 to $51.22 after posting its worst fourth-quarter results since 1995.
`Concern Is Growing'
``Concern is growing that monetary stimulus in its own right won't be enough,'' said Elizabeth Dater, chief investment officer at AG Asset Management, which oversees $3 billion in New York. ``Monetary stimulus can add liquidity and confidence to lending institutions on the financial side, but what we're worried about here is a consumer-led recession.''
Waters Corp., a supplier of products used in chemical testing, fell the most in the S&P 500, sliding $14.65, or 20 percent, to $58.58 after fourth-quarter earnings missed analysts' estimates.
Bank of America led financial shares to a 2.2 percent advance. The second-largest bank gained $1.42, or 4 percent, to $37.39 even after reporting earnings that fell 97 percent. Fourth-quarter net income slumped to $268 million, or 5 cents a share, from $5.26 billion, or $1.16, a year earlier the bank said in a statement. Excluding merger and restructuring costs and a gain from the sale of Marsico Capital Management LLC, the company earned 5 cents a share, missing the 21-cent average estimate of analysts surveyed by Bloomberg.
JPMorgan, the third-largest U.S. bank, increased $1.27 to $40.86. Wells Fargo, the biggest bank on the West Coast, rose $1.42 to $26.90.
Wachovia Corp., the fourth-largest U.S. bank, climbed $1.19 to $31.99 even after reporting profit fell 98 percent on writedowns for bad loans and mortgage-backed securities.
MBIA Inc. and Ambac Financial Group Inc. were the biggest percentage gainers in the S&P 500 after Ambac said it's considering ``strategic alternatives,'' spurring speculation the company will be bought. The two largest bond insurers lost 79 percent and 86 percent of their market value respectively in the past three months after writing down the value of mortgage- related financial products they guaranteed. MBIA rose $3.98, or 47 percent, to $12.53. Ambac gained $1.77, or 29 percent, to $7.97.
The U.S. economy may be ``one shock'' away from shrinking, with the global slump in stocks a possible ``tipping point,'' according to Lehman Brothers Holdings Inc. The New York-based firm sees the odds of a recession in the world's largest economy at 40 percent, rising from a ``1-in-3 chance'' at the beginning of the year, Paul Sheard, Lehman's global chief economist, said in a press briefing in Singapore today.
Goldman Sachs Group Inc., Morgan Stanley and Merrill Lynch & Co. already are forecasting the U.S. will slip into recession this year. The world's largest banks and securities firms have announced more than $100 billion in debt writedowns and loan losses after the collapse of the U.S. subprime mortgage market.
Stocks may slump again tomorrow after Apple Inc. forecast fiscal second-quarter earnings and revenue that missed analysts' estimates. The maker of the iPhone and Macintosh computers, which reported results after markets closed, said first-quarter earnings climbed 57 percent to $1.58 billion, or $1.76 a share, topping estimates. Apple Inc. lost $5.72 to $155.64. The shares slumped another 13 percent in extended trading after the release of its earnings and forecast.
Analysts estimate companies in the S&P 500 will report an average 17 percent decline in profits in the fourth quarter, led by a 95 percent decrease in financial company earnings, according to a Jan. 18 Bloomberg survey.
Retail stocks rose after Sanford C. Bernstein & Co. boosted the industry's rating to ``overweight,'' saying the group's recent declines already account for any likely deterioration in earnings growth.
Analysts including Colin McGranahan raised the world's two largest home-improvement retailers, Home Depot Inc. and Lowe's Cos Inc., as well as homewares seller Bed Bath & Beyond Inc., to ``outperform'' from ``marketperform.'' Home Depot climbed 7.3 percent to $28.20. Lowe's gained 11 percent to $24.54. Bed Bath & Beyond jumped 8.2 percent to $29.26.
The Fed's emergency reduction today, which lowered the target rate for overnight loans between banks to 3.5 percent, may not be enough to help stocks rally from their worst-ever start to a year, investor Laszlo Birinyi said.
'Emotion and Passion'
``I'm not sure it's going to help short term because right now emotion and passion are moving the markets, not so much rationale and analysis,'' Birinyi, president of Birinyi Associates Inc., said in an interview with Bloomberg Television. ``I don't think it's ever really prudent to try to catch the bottom. I might miss part of the move and leave some money on the table, but I'd rather do that than take a chance.''
Treasury yields plunged and the dollar had its biggest decline against the euro in two months on the prospect for lower interest rates on dollar-denominated assets. The benchmark 10- year note's yield dropped 0.15 percentage point to 3.48 percent, the lowest since June 2003.
The Russell 2000 Index, a benchmark for companies with a median market value of $507 million, dropped 0.2 percent to 671.57. The Dow Jones Wilshire 5000 Index, the broadest measure of U.S. shares, fell 0.9 percent to 13,189.67. Based on its decline, the value of stocks decreased by $148.5 billion.