S&P 500 Poised to Extend Biggest Drop Since 1987; EBay Declines

By Eric Martin

Oct. 16 (Bloomberg) -- U.S. stock-index futures retreated, indicating the Standard & Poor's 500 Index will extend the biggest plunge since the 1987 crash, after EBay Inc.'s forecast for its first decline in sales bolstered concern the economy will keep worsening.

EBay dropped 3.5 percent as the biggest Internet auctioneer cut its forecast, driving Amazon.com Inc. and Monster Worldwide Inc. down more than 4.3 percent. Morgan Stanley, Goldman Sachs Group Inc. and Citigroup Inc. fell as much as 7.6 percent.

S&P 500futures expiring in December fell 18.80 points, or 2.1 percent, to 884.50 at 2:55 p.m. in Tokyo. The index sank 9 percent to 907.84 yesterday, hammered by the biggest drop in retail sales in three years and growing doubt that plans to bail out banks will prevent further weakening by the economy.

``We do expect to see more economic damage similar to what we saw with retail sales,'' Jeremy Zirin, the senior equity strategist at UBS AG's wealth-management unit in New York, told Bloomberg Television. ``We're really seeing a transition from this being a financial market crisis to a more economic crisis.''

The retreat over the past two days erased almost all of the 12 percent gain in the S&P 500 on Oct. 13, when the market rallied the most since the 1930s on speculation the government's plan to shore up banks will ease the credit crisis. Efforts to calm financial markets probably won't result in an immediate economic rebound, Federal Reserve Chairman Ben S. Bernanke told the Economic Club of New York yesterday.

25% Drop in Three Weeks

The S&P 500 has lost 38 percent in 2008 as losses and writedowns from mortgage-related investments at financial firms worldwide topped $646 billion. The measure has retreated 25 percent since Sept. 26.

EBay fell 54 cents to $14.79 in trading after the official close of U.S. exchanges yesterday. The company projected its first quarterly sales decline and reduced its fourth-quarter and annual earnings forecasts. EBay estimated fourth-quarter revenue of $2.02 billion to $2.17 billion, compared with $2.18 billion a year earlier. The value of goods sold on EBay's sites fell 1 percent in the third quarter.

Amazon, the largest Internet retailer, dropped 4.8 percent to $46.40. Monster Worldwide, owner of the biggest online job- search Web site, declined 4.3 percent to $11.28. EBay, Amazon and Monster have lost more than 47 percent of their value in 2008.

Morgan Stanley fell 7.6 percent to $16.75, Goldman Sachs retreated 1.7 percent to $111.20 and Citigroup decreased 4.8 percent to $15.45. The S&P 500 Financials Index has plunged 46 percent in 2008.

Retail Sales Decline

All 10 S&P 500 industries fell more than 6 percent yesterday. About $1.1 trillion in value was erased from all U.S. equities. The declines came after the drop in retail sales was almost twice economists' estimates, sending Macy's Inc. and Dillard's Inc. down more than 15 percent. The Fed's index of New York manufacturing slumped to minus-24.6, a record low. The data overshadowed a retreat in money-market rates and better-than- estimated earnings reports from JPMorgan Chase & Co., Coca-Cola Co. and Intel Corp.

Exxon Mobil Corp., Chevron Corp. and ConocoPhillips, the biggest U.S. oil companies, helped lead energy companies to the largest retreat in the S&P 500 as crude fell below $75 a barrel for the first time in more than a year.

Oil futures lost 3 percent to $72.29 a barrel today.

The economy deteriorated throughout the U.S. last month and pessimism about the outlook spread, the Fed said in its regional economic survey yesterday. Retailing, auto sales and tourism declined in ``most'' districts, while housing and construction ``weakened or remained low,'' according to the Beige Book report, published two weeks before officials meet to set interest rates.

Economic Reports

A report today from the Labor Department may show consumer prices rose 0.1 percent in September after falling 0.1 percent the prior month, according to the median forecast of economists in a Bloomberg survey. The increase in prices in the 12 months ended September is projected to slow to 5 percent from 5.4 percent in August.

A separate report is forecast to show industrial production dropped 0.8 percent in September after a 1.1 percent decline the prior month, according to economists' estimates.

The S&P 500 is valued at 11.1 times estimated 2008 profit for its companies. When that price-to-earnings ratio sank to 10.9 on Oct. 10, it was the cheapest compared with the multiple using trailing profit since June 1985.

``I'm pretty sure that if I go all in right now, I'll be better off in the next six months, but boy, I'll lose some sleep,'' said John Wilson, co-director of equity strategy at Memphis, Tennessee-based Morgan Keegan, which manages $120 billion. ``There's always that little nagging voice that says, `What if it's different this time?'''

To contact the reporter on this story: Eric Martin in New York at emartin21@bloomberg.net.