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By SARA LEPRO, AP Business Writer Sara Lepro, Ap Business Writer Wed Nov 12,
6:19 pm ET
NEW YORK An increasingly despondent Wall Street fell for the third straight
session Wednesday as investors absorbed another series of dismal corporate
reports and news that the government won't buy banks' soured mortgage assets
after all. The Dow Jones industrials dropped more than 410 points, and all the
major indexes lost more than 4 percent.
The stock market has lost about $1 trillion over the past three days, according
to the Dow Jones Wilshire 5000 index, which reflects the value of nearly all
U.S. stocks.
The market started the day falling on more signs that companies are being hurt
by a severe pullback in consumer spending. Macy's Inc. said it lost $44 million
in the third quarter as sales at the department store retailer fell more than 7
percent. And consumer electronics retailer Best Buy Co. slashed its fiscal 2009
guidance on fears that consumer spending will erode even further.
Meanwhile, Morgan Stanley, suffering from the ongoing losses on Wall Street,
outlined plans to cut 10 percent of staff in its institutional securities group
its biggest business that covers everything from investment banking to stock
trading.
More bad news came out after the market closed Intel Corp. lowered its
fourth-quarter revenue and earnings outlook, citing a spending slowdown that is
reducing demand for its computer chips. Intel's stock fell in after-hours
trading, and its announcement was likely to trigger more selling across the
market on Thursday.
The bleak reports, which followed disappointing news from coffee retailer
Starbucks Corp. and homebuilder Toll Brothers Inc. earlier in the week, made it
increasingly clear to investors that companies across the economy are suffering
from the aftermath of the housing and credit crises.
"There just doesn't appear to be an end in sight to the bad news," said Anton
Schutz, portfolio manager of the Burnham Financial Industries Fund and the
Burnham Financial Services Fund. "The selling is relentless."
There was more pain at mid-morning, when Treasury Secretary Henry Paulson said
the government's $700 billion financial rescue package won't purchase troubled
assets from banks. He said that plan would have taken too much time, and that
the Treasury instead will rely on buying stakes in banks and encouraging them
to resume more normal lending.
While the market had been pleased by the government's decision weeks ago to buy
banks' stock, investors still hoped to see the financial industry relieved of
the burden of the mortgage assets whose decline in value helped set off the
nation's financial crisis. His comments, which underscored the anxiety that
remains about the health of the financial system, sent stocks falling further.
Analysts believe the market is in the process of retesting the intraday low hit
on Oct. 10, when the blue chips fell to 7,882.50.
"We're just going through the typical process of testing and retesting," said
Matt King, chief investment officer of Bell Investment Advisors. "If we can
continue to build higher and higher lows, that's definitely a positive. If the
Dow can build a base above 8,100 and bounce off that, we see that as a definite
technical positive."
The selling accelerated in the last hour of the day, as it has done in most
sessions over the past two months.
"When there is a lot of volatility, especially on a big down day, people just
decide they don't want to own stocks overnight," said Ryan Detrick, senior
technical strategist at Schaeffer's Investment Research. "News doesn't drive
this lower, fear does. Investors will back the next morning after they see
where things settled."
Late-day volatility has also been fed by hedge and mutual funds selling as
investors withdraw money from the market.
The Dow shed 411.30, or 4.73 percent, to 8,282.66. It was the lowest close for
the Dow since its 5 1/2-year low of 8,175.77 reached on Oct. 27.
According to the Dow Jones Wilshire 5000 index, Wednesday's paper losses
amounted to about $600 billion. By that measure, the stock market has shed $9.1
trillion since the index's Oct. 9, 2007, peak.
The broader Standard & Poor's 500 index dropped 46.65, or 5.19 percent, to
852.30, and the Nasdaq composite index stumbled 81.69, or 5.17 percent, to
1,499.21.
The Russell 2000 index of smaller companies fell 29.49, or 6.11 percent, to
452.80.
Declining issues overwhelmed advancers on the New York Stock Exchange, where
only 240 stocks rose while 2,869 fell. Consolidated volume came to 5.66 billion
shares, up from 4.93 billion shares Tuesday.
Though Paulson's announcement marks a major shift in the original bailout plan
and rattled investors, Wall Street analysts generally believe the Treasury is
now on the right path.
"That's really what they should have done originally," said King. "First and
foremost, we have to make sure banks are going to survive and then we can worry
about lending. This is the quickest and most efficient way to do that."
"Buying bad assets doesn't do that," he said.
However, there is some concern that the bailout funds are being depleted rather
quickly, said Jason O'Donnell, senior research analyst at Boenning &
Scattergood.
"Investors are generally in favor of the emphasis on the capital purchase
provisions," O'Donnell said. But, "we're down quickly to a small portion of
total funds remaining for other purposes."
Paulson also announced a new goal for the program to support financial markets
that supply consumer credit in such areas as credit card debt, auto loans and
student loans. He said, "with a stronger capital base, our banks will be more
confident" to support economic activity.
But investors are worried that a severe pullback in consumer spending which
drives more than two-thirds of the U.S. economy will prolong a global
economic downturn.
Macy's shares fell $1.04, or 11 percent, to $8.37. Best Buy shares tumbled
$1.91, or 8 percent, to $21.97.
The future of the country's top automakers remained a major concern on the
Street as well, as investors waited to see whether the government would put
together a bailout plan for General Motors Corp., Ford Motor Co. and Chrysler.
General Motors was the only gainer among the 30 Dow stocks Wednesday, rising 16
cents, or 5.5 percent, to $3.08. Ford gained 4 cents, or 2.2 percent, to $1.84.
Morgan Stanley, which converted into a bank holding company in September, said
it plans to scale back its institutional securities business before the end of
the year. The layoffs it plans are in addition to a 10 percent cut made earlier
this year to the group.
Morgan Stanley also plans to restructure its money management business by
cutting 9 percent of the group's work force. The securities firm employs about
44,000 people worldwide. Morgan Stanley shares fell $2.14, or 15.2 percent, to
$11.94.
Intel, which fell 41 cents to $13.52 during regular trading, fell to $12.56
after hours.
Meanwhile, American Express Co. is said to be seeking about $3.5 billion from
the government to help boost its balance sheet, according to a report in The
Wall Street Journal citing people familiar with the situation. AmEx, the No. 4
U.S. credit card issuer, won approval Monday from the Federal Reserve to become
a bank holding company, which gives it the ability to grow a large deposit base
and access financing from the Fed.
AmEx shares dropped $2.35, or 10.5 percent, to $20.05.
Government bond prices, which did not trade Tuesday because of Veterans Day,
moved higher as investors looked for safer investments. The three-month
Treasury bill's yield fell to 0.13 percent from 0.22 percent late Monday, and
the yield on the benchmark 10-year Treasury note fell to 3.67 percent from 3.76
percent late Monday.
Lower yields indicate stronger demand.
Crude dropped below $57 a barrel Wednesday on the growing realization that
global economic growth next year will slow more than originally feared, cutting
demand for crude products such as gasoline. Light, sweet crude fell $3.50, or
nearly 6 percent, to settle at $56.16 a barrel on the New York Mercantile
Exchange.
The dollar was mixed against other major currencies, while gold prices dipped.
Overseas, Japan's Nikkei closed down 1.29 percent and Hong Kong Hang Seng fell
0.73 percent. In Europe, London's FTSE 100 fell 1.52 percent, Germany's DAX
fell 2.96 percent, and France's CAC-40 dropped 3.07 percent.