Friday, August 1, 2008

U.S. Stocks Retreat on General Motors Loss, Higher Oil Prices

By Eric Martin

Aug. 1 (Bloomberg) -- U.S. stocks fell, adding to two months of losses for the Standard & Poor's 500 Index, after results at General Motors Corp. disappointed investors and oil prices jumped.

GM, the biggest U.S. automaker, declined the most since June after posting a $15.5 billion loss on plunging domestic sales. Macy's Inc. and Sears Holdings Corp. led retailers lower as the jobless rate climbed to 5.7 percent in July and oil advanced. Financial shares erased an earlier retreat as Lehman Brothers Holdings Inc. rallied on a report that the brokerage is in talks to sell mortgages to BlackRock Inc.

The Standard & Poor's 500 Index declined 7.07 points, or 0.6 percent, to 1,260.31, trimming its weekly advance to 0.2 percent. The Dow Jones Industrial Average lost 51.7, or 0.5 percent, to 11,326.32 and the Nasdaq Composite Index slipped 14.59, or 0.6 percent, to 2,310.96. Six stocks retreated for every five that rose on the New York Stock Exchange.

``The economy is slowly rolling over,'' said Charles Knott, who oversees $800 million as chief investment officer at Knott Capital Management in Exton, Pennsylvania. ``We're prepared for more on the downside and continue to be very cautious. If we have a sustained recession, GM and Ford are in a heck of a lot of trouble.''

Nine of the 10 industries in the S&P 500 retreated, with financial companies posting the only advance. The benchmark for U.S. equities has added 3.7 percent since falling to its low for the year on July 15.

Earnings Watch

Earnings have slumped by an average 20 percent in the second quarter for the 352 companies in the S&P 500 that have reported results so far, data compiled by Bloomberg show. Companies have trailed analysts' estimates by an average of 5.2 percent, even as the majority beat projections.

Still, only two industry groups have reported a decrease in average earnings. Profits have slumped 82 percent at S&P 500 financial firms and 5.4 percent at companies that sell consumer goods, according to the Bloomberg data.

GM's loss extended the average earnings decline for all U.S. companies that rely on discretionary consumer spending to 85 percent, the biggest retreat among 10 industries and more than the 74 percent decline at financial firms.

Stocks tumbled yesterday after economic growth trailed forecasts, jobless claims rose and Exxon Mobil Corp.'s profit missed analysts' estimates.

GM's Loss

GM's deficit of $27.33 a share marks the company's fourth straight quarterly loss and compares with a profit of $891 million, or $1.56 a share, a year earlier. Sales fell 18 percent to $38.2 billion, the Detroit-based automaker said in a statement today. The shares lost 84 cents, or 7.6 percent, to $10.23.

Macy's slumped 64 cents, or 3.4 percent, to $18.17. Sears lost $2.15, or 2.7 percent, to $78.85.

The jobless rate rose to 5.7 percent in July from 5.5 percent the prior month, the Labor Department said. Economists had forecast an unemployment rate of 5.6 percent.

Stocks opened higher after the government said employers cut fewer jobs than economists forecast in July. Payrolls fell by 51,000 last month, according to the Labor Department, less than the 75,000 drop forecast by economists.

``There are some faint glimmers of hope within this,'' said Walter Gerasimowicz, the chief executive officer at Meditron Asset Management in New York, which manages $1.1 billion. ``This may be a sign of unemployment claims beginning to turn down and a further indication that this near recession that we have is actually bottoming. We may be seeing the first signs of coming out of it.''

Crude's Rally

Crude oil rose after Israeli Deputy Prime Minister Shaul Mofaz said that Iran is on a path toward a ``major breakthrough'' in its nuclear program. Crude for September delivery rose 90 cents, or 0.7 percent, to $124.98 a barrel on the New York Mercantile Exchange after earlier jumping as much as $4.42.

Lehman jumped 7.6 percent to $18.65, erasing a 5.4 percent tumble, after CNBC reported the brokerage is in talks to sell mortgages and collateralized debt obligations to BlackRock. CNBC didn't cite the source of the information. A sale of Lehman's Neuberger Berman LLC asset-management unit is also ``still on the table,'' CNBC on-air editor Charles Gasparino reported.

Lehman spokesman Mark Lane declined to comment to Bloomberg News on the report.

The S&P 500 Financials Index climbed 0.6 percent, giving it a 4 percent gain on the week and extending its rally from a nine- year low on July 15 to 25 percent.

NYSE Euronext fell $6.09, or 13 percent, to $41.15. The world's largest owner of stock exchanges said profit excluding some costs was 75 cents a share, missing the 78-cent average estimate of analysts surveyed by Bloomberg.

Bear Markets

All of the 23 developed nations in the MSCI World Index except for Canada have experienced bear-market plunges of 20 percent or more since September as credit losses surged and record commodity prices stoked inflation. Brazil last week became the 23rd out of 25 developing countries in the MSCI Emerging Markets Index to enter a bear market. Only Jordan and Morocco avoided such slumps.

The S&P 500 has declined as much as 22 percent since its October record as financial institutions worldwide posted $480 billion in writedowns and credit losses stemming from the collapse of the subprime mortgage market. Equities retreated as inflation increased, giving the U.S. consumer price index the steepest gain since 1991.

Sun Microsystems Inc. declined $1.31, or 12 percent, to $9.32. The world's fourth-largest maker of server computers forecast results for the first quarter that fell short of analysts' estimates.

Brain Infections

Biogen Idec Inc. fell the most since February 2005, plunging $19.75, or 28 percent, to $50.01 and helping to drag the Nasdaq to the biggest retreat among benchmark indexes. Elan Corp. also dropped after the companies reported two new cases of a deadly brain infection in patients taking Tysabri, the multiple sclerosis drug that was reintroduced in 2006 after being removed for the same side effect. Elan American depositary receipts lost $10.12, or 50 percent, to $9.93.

MBIA Inc., owner of the world's largest bond insurer, had the steepest advance in the S&P 500, climbing $1.74, or 29 percent, to $7.67. Merrill Lynch & Co.'s agreement to tear up bond insurance contracts sold by Security Capital Assurance Ltd. may provide a template for other insurers struggling to meet their commitments, Bank of America Corp. analysts said. The worst housing slump since the Great Depression is causing financial firms to write down the value of bonds the companies had insured.

SCA will pay Merrill $500 million to cancel $3.7 billion of the guarantees it provided on collateralized debt obligations, the analysts wrote. Both companies said they were discussing ways of terminating guarantees with other counterparties when the transaction was announced July 28.

MGIC Investment Corp., the largest U.S. mortgage insurer, increased 65 cents, or 10 percent, to $7.05.

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