Dow Dives 733; Worst Loss Since 1987
Fears the U.S. will sink into a recession slammed head first into Wall Street on Wednesday, sending the Dow plunging to its worst percentage drop since October 1987.
An ugly report on retail sales served as a wake-up call for the markets, reminding Wall Street that even as the ailing credit markets appear to have improved, the economy is still in a precarious state.
Today＇s Market
The Dow Jones Industrial Average lost 733.08 points, or 7.87%, to 8577.91, the broader S&P 500 dropped 90.17 points, or 9.03%, to 907.84 and the Nasdaq Composite lost 150.68 points, or 8.47%, to 1628.33. The consumer-friendly FOX 50 fell 63.08 points, or 8.43%, to 685.12.
"Everybody was already worried about whether or not we would stay out of a recession. And then we had the credit crisis...Now everybody’s sure we’re in a recession," said Marc Pado, U.S. market strategist at Cantor Fitzgerald.
Monday＇s 733-point plunge was the second-worst ever on a point basis, second only to last month＇s 777-point dive. The selloff also landed the blue-chip index back below the crucial 9000 level.
On a percentage basis, Monday＇s selloff was the worst of the year and the steepest one-day decline since October 26, 1987, according to Dow Jones. Still, the losses weren＇t even close to the all-time record plunge of 22% on the benchmark U.S. index, set on Black Monday of October 1987.
“There’s still a little bit of gloom and doom in front of us,” said Michael Mainwald, head trader at LEK Securities. “Until some of these government-sponsored rescue plans work their way into the [financial] system, we’re going to have these 3% to 5% moves either way.”
The economic pessimism kept pressure on the markets Wednesday as the major indexes ended at session lows, never even reaching positive territory. The selloff adds to modest losses from Tuesday, combining to erase the vast majority of Monday＇s record 936-point surge on the Dow.
Wednesday marked a shift in focus for Wall Street as the markets begin to pay attention the fundamentals -- economic reports and corporate earnings -- rather than the drama in Washington that had grabbed most of the headlines.
The gloomy sentiment on Wall Street was clear from the outset as the markets shrugged off a series of better-than-expected earnings reports from major companies like JPMorgan Chase (JPM: 38.49, -2.22, -5.45%) and Wells Fargo (WFC: 33.35, -0.17, -0.50%).
All but one of the Dow＇s 30 components ended the day down by at least 4%. Energy giant ExxonMobil (XOM: 62.35, -10.11, -13.95%) and American Express (AXP: 24.41, -3.78, -13.40%) took the brunt of the damage, plunging by double-digit percentages. Citigroup (C: 16.23, -2.39, -12.83%) and aluminum maker Alcoa (AA: 11.33, -1.66, -12.77%) didn＇t fare much better. Coca-Cola (KO: 44.21, +0.48, +1.09%) was the lone gainer on the Dow, benefiting from its positive earnings report.
Tech stocks continued their recent slide on Wednesday, pushing the Nasdaq Composite down by more than 8%. Some of the steepest losses came from Amazon.com (AMZN: 48.72, -7.14, -12.78%), eBay (EBAY: 15.33, -2.41, -13.58%) and Dell (DELL: 12.58, -1.50, -10.65%).
The markets weren＇t helped by an afternoon speech from Federal Reserve Chairman Ben Bernanke, who warned that "credit markets will take some time to unfreeze," adding, "even if they stabilize...broader economic recovery will not happen right away."
Recession Fears Run Rampant
The Commerce Department＇s retail sales report bolstered fears the U.S. is either in or headed toward a recession. The government said retail sales fell 1.2% in September from a year ago as the financial crisis and bank failures helped scare consumers away from malls. Economists were expecting a more modest decline of 0.7%.
September＇s retail sales performance was the nation＇s worst since August 2005 and marked the third consecutive monthly decline, the longest such streak since records began in 1992. Not surprisingly, auto sales led the weakness, diving 3.8% to under 1 million last month.
The results sent shares of retailers like Macy＇s (M: 8.66, -1.84, -17.52%), Best Buy (BBY: 24.58, -2.48, -9.16%) and Target (TGT: 35.72, -4.06, -10.20%) into a tailspin on Wednesday.
Recession fears were most obvious in shares of home builders, with names like Pulte Homes (PHM: 9.85, -1.69, -14.64%), D.R. Horton (DHI: 7.32, -0.89, -10.84%) and Centex (CTX: 9.23, -1.21, -11.59%) diving by double-digit percentages.
Wall Street was also hurt by the release of the Federal Reserve＇s latest Beige Book, an economic snapshot that showed business conditions weakened in all 12 regional districts.
Earnings Reports Overshadowed
The retail sales report dwarfed a series of earnings reports that exceeded expectations from three Dow components: JPMorgan Chase (JPM: 38.49, -2.22, -5.45%), Intel (INTC: 14.99, -0.94, -5.90%) and Coca-Cola (KO: 44.21, +0.48, +1.09%). The blue-chip companies weren＇t alone as State Street (STT: 46.83, -9.86, -17.39%), Wells Fargo (WFC: 33.35, -0.17, -0.50%), Charles Schwab (SCHW: 19.94, -1.03, -4.91%) and Abbott Labs (ABT: 53.88, -0.90, -1.64%) all reported better-than-expected earnings.
While the results beat the Street＇s lowly expectations, many of the companies signaled caution about the outlook given a weak economy and a credit crisis that has inflicted untold damage on profits.
Wednesday＇s losses come despite some new indicators showing credit markets have calmed in recent days following a series of emergency actions from the federal government.
The three-month London Interbank Offering Rate, or Libor, slid to 4.55% from 4.64% on Wednesday. While Libor rates remain at elevated levels, they have fallen in recent days, indicating banks have been more willing to lend.
Meanwhile, crude oil prices continue to track the equities markets, sinking below $75 a barrel for the first time in over a year. Crude ended the day down $4.09 at $74.54 a barrel.
The latest plunge in oil prices put enormous pressure on the sinking energy sector, which ended 15% lower. Marathon Oil (MRO: 24.01, -5.84, -19.56%) and Hess (HES: 47.14, -11.17, -19.15%) closed with even sharper losses.
Corporate Movers
Intel (INTC: 14.99, -0.94, -5.90%) reported a better-than-expected 12% rise in third-quarter profit, sending its shares higher. The tech giant＇s revenue increased 1% but missed analyst estimates.
JPMorgan Chase (JPM: 38.49, -2.22, -5.45%) posted an 84% plunge in third-quarter earnings but managed to exceed expectations. The New York-based bank’s revenue was well shy of estimates, climbing 37% to $4.04 billion.
Coca-Cola (KO: 44.21, +0.48, +1.09%) was the only winner on the Dow after the beverage giant posted adjusted-earnings of 83 cents per share on revenue of $8.39 billion. Analysts had expected Coca-Cola to post earnings of 77 cents a share.
Wells Fargo (WFC: 33.35, -0.17, -0.50%) revealed a 25% slide in third-quarter profit and a weaker-than-expected 5% rise in revenue to $10.38 billion. But Wells Fargo＇s profit of 49 cents per share easily exceeded expectations for 34 cents per share.
State Street (STT: 46.83, -9.86, -17.39%) fell nearly 10% after the institutional money manger warned it may need to take a charge of up to $450 million due to struggling portfolios. Still, the company＇s earnings jumped 33% while its revenue rose 24%, topping estimates.
Bank of America (BAC: 23.82, -2.71, -10.21%) received U.S. antitrust approval for its $34.9 billion deal to acquire Merrill Lynch (MER: 18.24, -3.11, -14.56%), the Federal Trade Commission said.
Charles Schwab (SCHW: 19.94, -1.03, -4.91%) reported a 6% slide in third-quarter earnings that topped estimates but also disclosed a 9% decline in client assets at the end of September.
Delta Air Lines (DAL) posted a worse-than-expected adjusted-loss of 7 cents per share on a 9% rise in revenue to $5.72 billion.
Abbott Labs (ABT: 53.88, -0.90, -1.64%) beat the Street by reporting a third-quarter profit of 79 cents per share on $7.5 billion in sales. The maker of medical devices and prescription drugs also upped its 2008 earnings guidance.
Data Dump
The government also reported an in-line decline of 0.4% in producer prices in September. Excluding volatile food and energy prices, wholesale inflation grew 0.4% last month.
Global Markets
European markets led the way down Wednesday.
London’s FTSE 100 Index tumbled 314.62 points, or 7.16%, to 4079.59. France’s CAC 40 Index ended down 247.45, or 6.82%, to 3381.07.
Asian markets closed mixed overnight. Japan’s Nikkei 225 ended 99.90 points lower, losing 1.06% to close at 9547.47. Hong Kong’s Hang Seng Index plunged 834.58 points, or 4.96%, to 15998.30.
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