Saturday, January 5, 2008

U.S. Stocks Fall After Job Growth Misses Forecast; Apple Drops

By Elizabeth Stanton

Jan. 4 (Bloomberg) -- The U.S. stock market got off to its worst start since 2000 after government reports on jobs and manufacturing added to concern the economy will sink into recession.

Apple Inc., maker of the iPod music player, fell the most since April 2005 and was the biggest drag on the Standard & Poor's 500 Index. Apple declined after Intel Corp., the largest chipmaker, was downgraded by JPMorgan Chase & Co. Alcoa Inc., Home Depot Inc. and Hewlett-Packard Co. led the Dow Jones Industrial Average to its third retreat in four days.

``The economy's clearly downshifting rapidly,'' said James Swanson, chief investment strategist at MFS Investment Management in Boston, which oversees $204 billion. ``For equities it means some turbulence ahead.''

The S&P 500 slipped 35.53, or 2.5 percent, to 1,411.63, bringing its three-day loss to 3.9 percent, the most since it fell 4.6 percent to start 2000 and wiping out its gain from last year. The Dow average decreased 256.54, or 2 percent, to 12,800.18, marking its worst start since 1904. Ten shares declined for every one that rose on the New York Stock Exchange.

Computer-related shares dropped the most, dragging the Nasdaq down 98.03, or 3.8 percent, to 2,504.65. The 5.6 percent decline so far this year is the worst start since the electronic market opened in 1971. An index of computer companies in the S&P 500 fell the most in five years.

Apple, Intel Drop

Apple, the biggest gainer among technology stocks in the S&P 500 last year, lost 7.6 percent to $180.05. Intel dropped 8.1 percent to $22.67, the lowest since June. Research In Motion Ltd., maker of the BlackBerry e-mail device, slumped 8.4 percent to $103.35.

Chain stores and discounters in the S&P 500 declined 3.9 percent, their seventh straight retreat. Bed Bath & Beyond Inc., the largest U.S. home furnishings retailer, fell to a six-year low.

An index of stocks with the biggest hedge fund ownership posted its steepest drop in five months. The Goldman Sachs GSTHHVIP Basket fell 2.9 percent, the most since Aug. 9, when the world's largest securities company said its North American Equity Opportunities Fund sold holdings after losing 15 percent.

U.S. payrolls grew by 18,000 last month, about one-quarter the rate forecast by economists, and unemployment jumped to a two-year high of 5 percent. On Jan. 2, the Institute for Supply Management's manufacturing index had its steepest drop in five years, falling to 47.7 for December.

`Cast Some Doubt'

``The one thing that people have pinned their hopes on about avoiding a recession was that the labor market continued to be pretty strong,'' said Daniel Manion, manager of the $1.4 billion Sentinel Common Stock Fund in Montpelier, Vermont. ``This number really starts to cast some doubt on that.''

Two-year Treasury note yields dropped to the lowest since November 2004 on speculation the Federal Reserve will cut borrowing costs. The dollar touched a one-month low against the euro and yen.

Alcoa, the world's second-largest aluminum company, fell $1.32 to $34.87. Home Depot, the largest home-improvement retailer, fell 86 cents to $24.96, an almost five-year low. Hewlett-Packard, the No. 1 personal computer maker, slipped $2.78 to $46.87.

Intel was lowered to ``neutral'' from ``overweight'' by JPMorgan Chase & Co. A slowdown in order rates from the personal- computer market may result in ``downside to estimates'' in the first half of 2008, analysts including Christopher Danely wrote in a note today.

Most Since 2004

Semiconductor shares in the S&P 500 lost 6.3 percent, the most since July 2004.

Bed Bath & Beyond dropped $1.21 to $26.19. Quarterly profit fell for the first time in at least 15 years as customers grappled with declining home values and higher energy costs.

Talbots Inc. fell $1.22 to $9.46. The clothing retailer that lost half its market value last year said it plans to exit its children's and men's clothing units, close 78 stores and eliminate 800 jobs.

``I would expect consumer stocks to take the brunt of this sell-off, continuing the trend,'' said Daniel McMahon, head of equity trading at CIBC World Markets Corp. in New York.

Shares of retailers, homebuilders and automakers in the S&P 500 have fallen 6.2 percent since Dec. 31, the second-worst performance among 10 industry groups in the S&P 500 behind technology. The group lost 14 percent last year, trailing only financial companies, which plunged 21 percent.

Since 1931

Ford Motor Co. fell 32 cents to $6.13, the lowest since 1986, after losing its status as the second-largest seller of autos in the U.S. for the first time in 76 years. Automakers' 2007 year-end sales reports yesterday showed Toyota Motor Corp. taking the No. 2 spot held by Ford since 1931.

SLM Corp. declined $2.49, or 13 percent, to $16.67 for the steepest drop in the S&P 500. The biggest U.S. educational lender said it will be more selective in pursuing loan originations and will cut services to borrowers.

Regions Financial Corp. declined $2.48, or 11 percent, to $20.80. Alabama's biggest bank will quadruple its reserve for loan losses to $360 million for the fourth quarter because of slowing real estate markets in Florida and Georgia.

``The Fed is behind the curve in lowering interest rates, and today's weak job growth is further evidence of that,'' said Dan Veru, who helps manage $3 billion as co-chief investment officer at Palisade Capital Management in Fort Lee, New Jersey.

Half-Point Cut?

The odds that the Fed will lower its target for the overnight lending rate between banks by half a percentage point when policy makers hold their next scheduled meeting on Jan. 30 rose to 68 percent from 34 percent in the interest-rate futures market. The odds of a quarter point cut slipped to 32 percent from 66 percent.

The central bank began a series of rate cuts with a half- point move in September, followed by two quarter-point cuts in October and December, bringing the federal funds rate target to 4.25 percent.

FPL Group Inc. and FirstEnergy Corp. led utilities to a 0.4 percent advance, the only gain among 10 industries in the S&P 500. FPL Group rose $1.85, or 2.8 percent, to $68.82 and was the biggest gainer in the S&P 500. FirstEnergy added $1.64 to $74.32.

``Investors should think about repositioning to areas that tend to do well in slowdowns,'' MFS's Swanson said.

The Russell 2000 Index, a benchmark for companies with a median market value of $541 million, dropped 3.1 percent to 721.60. The Dow Jones Wilshire 5000 Index, the broadest measure of U.S. shares, fell 2.6 percent to 14,210.85. Based on its decline, the value of stocks decreased by $471.3 billion.

Apple Inc. (AAPL US)
Bed Bath & Beyond Inc. (BBBY US)
Dell Inc. (DELL US)
FirstEnergy Corp. (FE US)
Ford Motor Co. (F US)
FPL Group Inc. (FPL US)
Hewlett-Packard Co. (HPQ US)
Home Depot Inc. (HD US)
Intel Corp. (INTC US)
Regions Financial Corp. (RF US)
Research In Motion Ltd. (RIMM US)
SLM Corp. (SLM US)
Talbots Inc. (TLB US)
YRC Worldwide Inc. (YRCW US)

No comments: