Wednesday, October 22, 2008

U.S. Stocks Tumble, S&P 500 Drops to Lowest Level Since 2003

By Elizabeth Stanton

Oct. 22 (Bloomberg) -- U.S. stocks sank and the Standard & Poor's 500 Index dropped to the lowest level since April 2003 on concern a worsening global economic slump will damp profits.

Exxon Mobil Corp. tumbled 9.7 percent and Freeport-McMoRan Copper & Gold Inc. plunged 18 percent as crude fell more than $5 a barrel and an index of commodity prices dropped to four-year low. Coventry Health Care Inc. tumbled 51 percent as the health insurer's earnings were hurt by bad investments and rising medical costs. SanDisk Corp. sank 32 percent after Samsung Electronics Co. abandoned its takeover bid. European and Asian shares fell, while an index of emerging market stocks slumped 8.3 percent on concern Argentina may default on its debt.

The S&P 500 lost 58.27 points, or 6.1 percent, to 896.78. The Dow Jones Industrial Average plunged 514.45, or 5.7 percent, to 8,519.21 as all 30 of its companies dropped. The Nasdaq Composite Index lost 80.93, or 4.8 percent, 1,615.75. About 24 stocks fell for each that rose on the New York Stock Exchange.

``The question is: Is any money at all flowing towards equities?'' said Jeffrey Coons, co-director of research at Manning & Napier Advisors Inc. in Fairport, New York, which manages $16 billion. ``Dividend yields alone should be providing support for some of these stocks, but if everyone's selling and no one is buying, it's hard to overcome that.''

The S&P 500 extended its 2008 retreat to 39 percent, poised for its worst yearly performance since 1931. The benchmark index for U.S. equities has fallen 43 percent from its peak last October. Companies in the index are paying 3.2 percent of their stock price in dividends, near the highest yield since Bloomberg began tracking the data in 1995.

Economic Concern

Growing concern over the fate of the global economy overshadowed another decrease in money-market rates. The three- month London interbank offered rate for dollars dropped for an eighth straight day to 3.54 percent after the U.S. government's latest initiative to resuscitate bank lending, a $540 billion commitment to buy troubled assets from money-market mutual funds.

The U.S. dollar traded for less than $1.28 against the euro for the first time since November 2006 and the pound tumbled to a five-year low on speculation European central banks will cut interest rates to bolster their economies.

About 1.6 billion shares changed hands on the floor of the NYSE, 6.8 percent more than the three-month daily average.

Credit Concern

Today's drop came as a U.S. House panel released e-mails showing employees at Moody's Investors Service and Standard & Poor's privately questioned the value of some mortgage-backed securities that were given creditworthy ratings. Banks worldwide reported more than $660 billion of mortgage-related writedowns and credit losses in the past year.

Exxon Mobil, the largest oil company, lost $6.93 to $64.57 and helped send the S&P 500 Energy Index to a 10.4 percent tumble, the steepest among 10 industries.

Crude for December delivery declined $5.28, or 7.3 percent, to $66.90 a barrel. Futures touched $66.20, the lowest since June 2007. The Reuters/Jefferies CRB index of 19 metals and chemicals slid 4 percent to 276.4, the lowest since July 2004.

ConocoPhillips slid 9.1 percent to $49.06 despite reporting third-quarter profit that exceeded the average analyst estimate.

Freeport-McMoRan, the largest publicly traded copper producer, lost $5.82 to $26.92 and led a gauge of raw-material companies in the S&P 500 to an 8.3 percent decline. Alcoa Inc., the largest U.S. aluminum producer, slid 13 percent to $10.50 for the biggest drop in the Dow average.

SanDisk tumbled $4.67 to $10.09. South Korea's Samsung withdrew its $26-a-share offer for the world's largest maker of memory cards used in digital cameras, saying losses at the U.S. company may worsen as a glut forces chipmakers to cut prices.

Earnings Watch

Coventry Health slumped $14.56 to $13.93. The insurer said third-quarter profit fell to 58 cents a share. That's half the average analyst estimate of $1.06, according to a Bloomberg survey.

Profits retreated 27 percent on average for the 141 companies in the S&P 500 that released results as of this morning, according to data compiled by Bloomberg. The group has trailed analysts' earnings estimates by an average of 2.6 percent.

Wall Street analysts forecast an 11 percent drop in third- quarter earnings in a Bloomberg survey. That would mark the fifth straight quarter of declining profits.

For the fourth quarter, analysts estimate a 24.2 percent increase in profits. For fiscal 2009, they project growth of 18 percent to a combined $95.70 a share for the S&P 500, according to estimates gathered by Bloomberg.

Inflated Estimates?

``Everyone's got to lower their expectations,'' Keith Wirtz, president and chief investment officer of Fifth Third Asset Management, said on Bloomberg Television. ``This year we're looking at operating earnings somewhere in the mid-$90 range for S&P 500 companies. Who knows what next year might be. It might be somewhere in the mid-$70s.''

Boeing Co., the second-largest maker of commercial airplanes, reported a 38 percent decline in earnings after a strike by machinists shuttered factories and halted deliveries. Net income decreased to $695 million, or 96 cents a share. Analysts had estimated earnings of $1.01 a share. The shares slid $3.49, or 7.5 percent, to $42.91.

AT&T Inc., the largest U.S. phone company, lost $1.95 to $23.78. The company posted third-quarter profit that trailed analysts' projections on costs to subsidize Apple Inc.'s iPhone 3G and declines in corporate spending.

Apple advanced 5.9 percent to $96.87. The company reached a goal of selling 10 million iPhones three months ahead of schedule.

The S&P 500's 23 percent drop so far in October is bigger than any monthly loss since May 1940. It hasn't advanced for two straight days since Sept. 25-26.

`Doesn't Pay to Rush'

``To make people feel better you need at least a couple of consecutive up days,'' said Paul Kandel, a New York-based money manager at Sentinel Asset Management, which oversees $5 billion. ``The market's rotating so quickly that it doesn't pay to rush into anything.''

The S&P 500 has moved more than 1 percent on 13 of the 16 trading days this month, making it the most volatile by that measure since September 1932, according to S&P analyst Howard Silverblatt.

Stocks fell yesterday after companies from Texas Instruments Inc. to Freeport-McMoRan posted results that failed to meet analysts' estimates.

At least 139 S&P 500 companies are scheduled to report third-quarter earnings this week.

Rebound Halted

Yesterday's drop halted a rebound in the S&P 500 from an almost 5 1/2-year low on Oct. 10. The benchmark index for U.S. equities climbed 9.6 percent from that date through Oct. 20 as borrowing costs declined, the government planned to buy stakes in banks and Federal Reserve Chairman Ben S. Bernanke endorsed another economic-stimulus package.

VMware Inc. added 7.1 percent to $20.06. The biggest maker of programs that let computers run multiple operating systems earned 24 cents a share in the third quarter, excluding some items. That topped the average estimate in a Bloomberg survey by 18 percent. EMC Corp., the majority owner of VMware, climbed 3 percent to $9.98.

C.H. Robinson Worldwide Inc. rose 9.5 percent to $43.89. The largest U.S. arranger of freight shipments was raised to ```buy'' from ``neutral'' at Merrill Lynch & Co., which cited increased truckloads in the third quarter.

Yahoo! Inc. gained 2.7 percent to $12.39. The Internet company that rejected a takeover offer from Microsoft Corp. said it plans to cut at least 10 percent of its staff after advertising spending slowed.

Broadcom Corp. climbed 6.5 percent to $14.70. The maker of chips for the iPhone and Nintendo Co.'s Wii game console said third-quarter profit increased almost sixfold, topping estimates, on wireless product sales and a technology royalty payment. Inc. tumbled 13 percent to $43.28 in trading after U.S. exchanges closed. The world's largest Internet retailer said its full-year forecast for sales and operating income would be lower than it originally projected.

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