source: www.bloomberg.com
By Elizabeth Stanton
Nov. 22 (Bloomberg) -- U.S. stocks dropped for a third week on signs of a deepening recession and growing concern about the fate of Citigroup Inc. and the nation's automakers.
The Standard & Poor's 500 Index rallied from an 11-year low yesterday after President-elect Barack Obama picked New York Federal Reserve Bank chief Timothy Geithner as Treasury secretary. Citigroup, the largest U.S. bank by assets, plunged 60 percent this week on concern more customers will default as the economy worsens. General Motors Corp., the biggest U.S. automaker, touched the lowest since the 1930s as Congress delayed action on a bailout for the industry. Treasuries gained, pushing yields to record lows, as investors sought safer assets.
``When you see the annihilation of Wall Street, when you see the auto industry on the verge of bankruptcy, and when you see Citigroup that supposedly was a sound company driven to its knees with the price of its stock, it strikes a chord of fear in people's hearts,'' said Bruce McCain, the Cleveland-based chief investment strategist at Key Private Bank, which manages about $30 billion.
The S&P 500 fell 8.4 percent to 800.03. Its close at 752.44 on Nov. 20 was the lowest since April 1997. The Dow Jones Industrial Average slid 450.89 points, or 5.3 percent, to 8,046.42. The Russell 2000 Index of small-company stocks retreated 11 percent to 406.54.
`Very Deep Recession'
The S&P 500 extended its 2008 retreat to 46 percent, which would be the worst annual drop since 1931. Concern the recession is worsening was spurred after jobless claims approached the highest level since 1982, prices paid to U.S. producers plunged by the most on record and the Federal Reserve said manufacturing in the Philadelphia area shrank at the fastest pace in 18 years.
``The stock market is coming around to start agreeing with the bond market, and basically saying we're headed for a very, very deep recession, possibly a depression,'' said Robert Arnott, the founder of Pasadena, California-based Research Affiliates LLC, which manages $30 billion.
Financial companies in the S&P 500 plunged 24 percent as a group for the biggest drop in at least 19 years. Citigroup lost half its value in three days, ending the week at $3.77, after it said it will wind down seven off-the-books investment funds after failing to salvage them. The so-called structured investment vehicles, which Citigroup invented in 1988, emerged 15 months ago as one of the first casualties of rising default rates on subprime mortgages.
Insurers Plunge
The stock extended its declines yesterday after Chief Executive Officer Vikram Pandit told employees he doesn't plan to break up the company. Once the biggest U.S. bank by market value, Citigroup has now slipped to No. 5 behind Minneapolis- based U.S. Bancorp.
Hartford Financial Services Group Inc. and Lincoln National Corp. led insurers in the S&P 500 to a 19 percent drop on concern falling stock and corporate bond prices are producing investment losses that will force them to raise capital. Hartford sank 61 percent to $4.95. Lincoln National tumbled 56 percent to 6.36.
GM fell to as low as $1.70, a price it hasn't close below since before 1940, according to Global Financial Data in Los Angeles. The shares rallied yesterday to end the week higher by 1.6 percent to $3.06.
The chief executive officers of GM, Ford Motor Co. and Chrysler LLC met with Congress to seek $25 billion in aid they said is necessary to keep them in business. Democratic leaders blocked immediate action on loans and ordered the companies to make a case for the aid next month.
Oil Below $50
A gauge of energy shares in the S&P 500 slumped 4.3 percent, the most in six weeks. Crude oil plunged to $48.25 a barrel yesterday, the lowest since May 2005, before settling at $49.93, down 12 percent for the week.
Hess Corp., the fifth-biggest U.S. oil producer, lost 19 percent to $44.87. Chevron Corp., the second-largest, fell 3 percent to $70.49. Schlumberger Ltd., the world's biggest oilfield-services provider, declined 7.7 percent to $45.
Hewlett-Packard Co. rose the most in the Dow average, gaining 14 percent to $34.64. The biggest maker of personal computers reported fourth-quarter profit that beat analysts' estimates and forecast growth in 2009.
Dell Inc., the second-biggest PC maker, retreated 15 percent to $9.30. The company's third-quarter sales trailed analysts' projections by more than $1 billion, while earnings fell 5.1 percent.
Profit Declines
In aggregate, earnings fell 19 percent for the 475 companies in the S&P 500 that reported third-quarter results through Nov. 19, according to data compiled by Bloomberg. Companies scheduled to report next week include Campbell Soup Co., Deere & Co. and Tiffany & Co.
As Treasuries rose, the dividend yield on the S&P 500 exceeded the benchmark 10-year note's yield for the first time since 1958. The 10-year yield declined to 3.20 percent from 3.74 percent, and touched 2.99 percent, the lowest since the government began regular issuance of the securities.
A measure of the cost of using options to insure against declines in the S&P 500 gained 9.6 percent this week and rose to a record 80.86 on Nov. 20. The VIX, as the Chicago Board Options Exchange Volatility Index is known, fell yesterday to 72.67 as stocks climbed on Obama's pick of Geithner as head of the Treasury.
Geithner helped lead U.S. efforts to combat the deepest financial crisis in seven decades, helping oversee the decisions to take over American International Group Inc., rescue Bear Stearns Cos. and allow Lehman Brothers Holdings Inc. to fail. The S&P 500 rallied in the last hour of trading yesterday after reports of his appointment, closing higher by 6.3 percent.
To contact the reporter on this story: Elizabeth Stanton in New York at estanton@bloomberg.net
The S&P 500 fell 8.4 percent to 800.03. Its close at 752.44 on Nov. 20 was the lowest since April 1997. The Dow Jones Industrial Average slid 450.89 points, or 5.3 percent, to 8,046.42. The Russell 2000 Index of small-company stocks retreated 11 percent to 406.54.
`Very Deep Recession'
The S&P 500 extended its 2008 retreat to 46 percent, which would be the worst annual drop since 1931. Concern the recession is worsening was spurred after jobless claims approached the highest level since 1982, prices paid to U.S. producers plunged by the most on record and the Federal Reserve said manufacturing in the Philadelphia area shrank at the fastest pace in 18 years.
``The stock market is coming around to start agreeing with the bond market, and basically saying we're headed for a very, very deep recession, possibly a depression,'' said Robert Arnott, the founder of Pasadena, California-based Research Affiliates LLC, which manages $30 billion.
Financial companies in the S&P 500 plunged 24 percent as a group for the biggest drop in at least 19 years. Citigroup lost half its value in three days, ending the week at $3.77, after it said it will wind down seven off-the-books investment funds after failing to salvage them. The so-called structured investment vehicles, which Citigroup invented in 1988, emerged 15 months ago as one of the first casualties of rising default rates on subprime mortgages.
Insurers Plunge
The stock extended its declines yesterday after Chief Executive Officer Vikram Pandit told employees he doesn't plan to break up the company. Once the biggest U.S. bank by market value, Citigroup has now slipped to No. 5 behind Minneapolis- based U.S. Bancorp.
Hartford Financial Services Group Inc. and Lincoln National Corp. led insurers in the S&P 500 to a 19 percent drop on concern falling stock and corporate bond prices are producing investment losses that will force them to raise capital. Hartford sank 61 percent to $4.95. Lincoln National tumbled 56 percent to 6.36.
GM fell to as low as $1.70, a price it hasn't close below since before 1940, according to Global Financial Data in Los Angeles. The shares rallied yesterday to end the week higher by 1.6 percent to $3.06.
The chief executive officers of GM, Ford Motor Co. and Chrysler LLC met with Congress to seek $25 billion in aid they said is necessary to keep them in business. Democratic leaders blocked immediate action on loans and ordered the companies to make a case for the aid next month.
Oil Below $50
A gauge of energy shares in the S&P 500 slumped 4.3 percent, the most in six weeks. Crude oil plunged to $48.25 a barrel yesterday, the lowest since May 2005, before settling at $49.93, down 12 percent for the week.
Hess Corp., the fifth-biggest U.S. oil producer, lost 19 percent to $44.87. Chevron Corp., the second-largest, fell 3 percent to $70.49. Schlumberger Ltd., the world's biggest oilfield-services provider, declined 7.7 percent to $45.
Hewlett-Packard Co. rose the most in the Dow average, gaining 14 percent to $34.64. The biggest maker of personal computers reported fourth-quarter profit that beat analysts' estimates and forecast growth in 2009.
Dell Inc., the second-biggest PC maker, retreated 15 percent to $9.30. The company's third-quarter sales trailed analysts' projections by more than $1 billion, while earnings fell 5.1 percent.
Profit Declines
In aggregate, earnings fell 19 percent for the 475 companies in the S&P 500 that reported third-quarter results through Nov. 19, according to data compiled by Bloomberg. Companies scheduled to report next week include Campbell Soup Co., Deere & Co. and Tiffany & Co.
As Treasuries rose, the dividend yield on the S&P 500 exceeded the benchmark 10-year note's yield for the first time since 1958. The 10-year yield declined to 3.20 percent from 3.74 percent, and touched 2.99 percent, the lowest since the government began regular issuance of the securities.
A measure of the cost of using options to insure against declines in the S&P 500 gained 9.6 percent this week and rose to a record 80.86 on Nov. 20. The VIX, as the Chicago Board Options Exchange Volatility Index is known, fell yesterday to 72.67 as stocks climbed on Obama's pick of Geithner as head of the Treasury.
Geithner helped lead U.S. efforts to combat the deepest financial crisis in seven decades, helping oversee the decisions to take over American International Group Inc., rescue Bear Stearns Cos. and allow Lehman Brothers Holdings Inc. to fail. The S&P 500 rallied in the last hour of trading yesterday after reports of his appointment, closing higher by 6.3 percent.
To contact the reporter on this story: Elizabeth Stanton in New York at estanton@bloomberg.net
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