Sunday, January 20, 2008

U.S. Stocks Post Steepest Drop Since July 2002; Citigroup Falls

By Michael Patterson

Jan. 19 (Bloomberg) -- U.S. stocks posted the steepest weekly drop since July 2002 after lower-than-estimated home construction, retail sales and manufacturing reinforced speculation that the economy is entering a recession.

Intel Corp. led technology companies lower for the fourth straight week after the world's biggest chipmaker forecast sales that trailed estimates. Citigroup Inc., the largest U.S. bank by assets, plunged to the lowest since February 1999 after reporting the biggest loss in its 196-year history.

Home construction fell 14 percent in December, concluding the worst year for the industry since 1980, the Commerce Department said. Separate government reports showing retail sales fell for the first time since June and manufacturing in the Philadelphia region slid to a six-year low heightened concern that the housing slowdown is infecting the broader economy.

``It looks to me like we're already in a recession,'' said Jason Cooper, who helps manage about $2.5 billion at 1st Source Investment Advisors in South Bend, Indiana. ``There's nothing out there to say the worst is over.''

The Standard & Poor's 500 Index declined 5.4 percent this week to 1,325.19, the lowest level since September 2006. The benchmark for U.S. equities has tumbled 9.8 percent this year, its worst-ever start.

Dow Average, Nasdaq

The Dow Jones Industrial Average dropped 4 percent to 12,099.30, extending its 2008 slump to 8.8 percent. The Nasdaq Composite Index lost 4.1 percent to 2,340.02. The Russell 2000 Index, whose members have a median market value that's 96 percent lower than the S&P 500's, dropped 4.5 percent to 673.18. The small-company index's 21 percent retreat from a July record puts it in a bear market for the first time since 2002.

President George W. Bush's proposed economic stimulus package of as much as $150 billion and Federal Reserve Chairman Ben S. Bernanke's assurance that the central bank is ready to take ``substantive additional action'' on interest rates failed to allay investors' concern that a weakening economy will reduce corporate earnings.

``You can see almost every member of our government talking about their concern for the economy and what they're trying to do to help, but that only makes it feel worse from the financial markets' point of view,'' said David Pearl, who helps oversee about $6.7 billion as head of U.S. equities at Epoch Investment Partners in New York.

The Chicago Board Options Exchange Volatility Index, or VIX, rose 15 percent this week to 27.18. The benchmark for U.S. options prices, which tends to increase when stocks fall, has surged 151 percent over the past year.

Intel Declines

Intel dropped 14 percent to $19 for the week, the lowest since March. The semiconductor maker said first-quarter revenue would be as low as $9.4 billion, less than the $10.1 billion predicted by analysts in a Bloomberg survey. The S&P 500 Information Technology Index declined 3.1 percent, extending its 2008 retreat to 12 percent.

Citigroup declined 14 percent to $24.45, the biggest weekly loss since July 2002. The bank wrote down the value of subprime- mortgage investments by $18 billion, reduced its dividend by 41 percent and said it would sell $14.5 billion of preferred stock to investors including the government of Singapore to shore up depleted capital. Chief Executive Officer Vikram Pandit eliminated 4,200 jobs and plans more cuts.

Merrill Lynch & Co. lost 5.2 percent to $51.87. The biggest U.S. brokerage reported a record loss after $16.7 billion of writedowns on assets affected by subprime mortgages.

Financial shares in the S&P 500 fell 7.8 percent as a group, the most since July 2002, to the lowest level since 2003.

`Remain Wary'

MBIA Inc. and Ambac Financial Group Inc., the two biggest bond insurers, tumbled 48 percent and 71 percent, respectively. The companies have a more than 70 percent chance of going bankrupt, credit-default swaps show.

``We remain wary of U.S. banks and financials,'' said Brett Hammond, who helps oversee more than $435 billion in assets as chief investment strategist at TIAA-CREF in New York. ``The risk is still on the downside.''

More than 100 companies in the S&P 500 will report earnings next week, including Apple Inc., Bank of America Corp. and Pfizer Inc. Analysts estimate that fourth-quarter profit for index members as a group fell 17 percent, according to Bloomberg data. That would be the biggest quarterly drop since 2001.

U.S. stock markets will be closed Jan. 21 for the Martin Luther King Jr. holiday.

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