By Jeff Kearns
Oct. 27 (Bloomberg) -- U.S. stock futures fell, indicating the market may extend the worst monthly plunge in 70 years, as concern the global economic slowdown is deepening outweighed speculation the Federal Reserve will cut interest rates.
Reports this week may show the U.S. economy shrank last quarter for the second time in a year as consumers and companies retrenched. Traders increased bets that the Fed will cut its target for overnight loans between banks in half to 0.75 percent this week. The Bank of Korea today slashed interest rates by a record at an emergency board meeting.
Standard & Poor's 500 Index futures expiring in December declined 14.2 points, or 1.6 percent, to 851.80 at 3:24 p.m. in Tokyo. U.S. stocks tumbled last week, driving the S&P 500 toward the steepest monthly loss since 1938, on concern the global economy is sliding into a recession.
``The financial crisis is spreading and the reach of the developed world's recession appears to be broadening,'' said Doug Peta, New York-based market strategist at J&W Seligman & Co., which manages about $15 billion.
The S&P 500 retreated 6.8 percent to 876.77 last week, the lowest level since April 2003. The benchmark index for U.S. equities plunged 25 percent in October. The Dow average fell 5.4 percent to 8,378.95 last week. The MSCI World Index of 23 developed markets lost 8.3 percent, while Brazil, Russia and India drove a gauge of 25 emerging markets to a 17 percent slump.
Alcoa, Citigroup Plunge
Alcoa Inc., Citigroup Inc. and Hewlett-Packard Co. retreated the most in the Dow Jones Industrial Average last week, losing more than 18 percent, on speculation the financial crisis spread beyond banks to industrial companies and computer makers. General Motors Corp. approached the lowest price since the 1950s, and Ford Motor Co. plunged 17 percent.
``There are forced sellers and no one willing to stick their neck out,'' said Henry Herrmann, Overland Park, Kansas- based president of Waddell & Reed Financial Inc., which manages $70 billion.
Gross domestic product contracted at a 0.5 percent annual rate from July to September, the biggest drop since the 2001 recession, according to the median estimate in a Bloomberg News survey ahead of Commerce Department figures due Oct. 30. Consumer spending, the biggest part of the economy, probably dropped by the most in almost two decades as job losses mounted, stock prices sank and property values plummeted.
Jack Welch, General Electric Co.'s former chief executive officer, said that the U.S. economy will start to improve in late 2009 after struggling for the next three quarters.
`Very Tough Times'
``We are going to have some very tough times,'' Welch said yesterday on the ABC News ``This Week'' program. ``The fourth quarter of this year could have negative growth in the 3-to-4 percent range.''
Futures showed odds increased the Fed will cut its rate target by 0.75 percent. Traders are assigning a 26 percent chance of a three-quarter-point cut, up from no chance a week ago, while odds of a half-point cut are 74 percent.
``A cut would send a positive signal that the Fed remains vigilant in keeping the financial system fluid and flooded with money as the credit markets thaw,'' said Mark Luschini, who oversees $1 billion as chief investment officer at Parker Hunter Asset Management in Pittsburgh.
More than 40 heads of state at a government meeting in Beijing called for an overhaul of World War II-era banking rules, and ``pledged to undertake effective and comprehensive reform of the international monetary and financial systems,'' according to a statement. The two-day summit was the first meeting of Asian and European Union chiefs since calls for coordinated action mounted along with bank failures and plunging stock prices that began last month.
$10 Trillion Lost
More than $10 trillion has been erased from the market value of shares worldwide this month as earnings decreased. The 236 companies in the S&P 500 that have reported third-quarter results posted a 23 percent decline on average. Reports showed the U.K. economy contracted for the first time since 1992 and growth in South Korea was the slowest in four years.
The Bank of Korea today cut the seven-day repurchase rate 75 basis points to 4.25 percent in an attempt to bolster its financial markets.
All 48 of the developed and emerging markets tracked by MSCI have declined in 2008, with 22 losing at least half their value. The 73 percent plunge by Russia's Micex Index is the steepest. Benchmark indexes for China, Greece, Ireland, Peru and Austria retreated more than 60 percent. The S&P 500 dropped 40 percent. Morocco and Jordan have done the best, falling 6.4 percent and 19.2 percent, respectively.
It's ``panic creating a freefall as investors simply liquidate anything and everything,'' said Walter Gerasimowicz, the New York-based chief executive officer at Meditron Asset Management, which manages $1.1 billion. ``The market seems to be very overdone, almost pricing for a depression.''
VIX, Treasuries Rally
The Chicago Board Options Exchange Volatility Index, or VIX, a gauge of how much investors are paying for insurance against S&P 500 declines, rose 13 percent to a record 79.13 last week.
Treasuries rallied, pushing the yield on the 30-year bond to the lowest in more than three decades. It sank as low as 3.8676 percent yesterday.
``The U.S. and European markets have blown out to record levels of attractiveness versus bonds,'' Barton Biggs, a former Morgan Stanley strategist who now runs the hedge fund Traxis Partners LLC, said during a Bloomberg Television interview. Stocks are at ``very, very cheap levels.''
Last week, 245 of the 500 companies that make up the S&P 500 dropped to the lowest price in a year or more. Russian equities are the cheapest in the world, trading for 2.5 times estimated 2008 profit. The 27 nations with price-to-earnings ratios of 8 or less include Germany, Turkey, South Africa, the U.K. and Indonesia. The S&P 500's multiple is 11.
``There is an extreme level of pessimism and almost despair,'' said Biggs, 75. ``As long as I have been in the business, those have always been good signs.''
Alcoa fell 20 percent to a 13-year low of $9.41 last week. Citigroup lost 18 percent to $12.14, the lowest price since October 1996. Hewlett-Packard declined 18 percent to $32.44. GM decreased 7.5 percent to $5.95, remaining above the five-decade low of $4.76 reached two weeks ago. Ford slipped 17 percent to $2.01.
To contact the reporter on this story: Jeff Kearns in New York at jkearns3@bloomberg.net.
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