By Eric Martin
Oct. 29 (Bloomberg) -- U.S. stocks dropped as the Standard & Poor's 500 Index erased a 3.1 percent rally in the final 12 minutes of trading on concern that the Federal Reserve's sixth interest-rate cut this year isn't enough to rescue the economy.
Intel Corp., JPMorgan Chase & Co. and Citigroup Inc. fell more than 4 percent. The central bank lowered its rate target by half a point to 1 percent, a level matching a half-century low, and said ``downside risks to growth remain.''
``The Fed was saying that a recession is in place and that a global recession is unfolding,'' said Quincy Krosby, who helps manage $416 billion as chief investment strategist at Hartford in Hartford, Connecticut. ``There was nothing in the statement suggesting anything different than what every economist has acknowledged, which is that there's a global slowdown, the consumer is under pressure and businesses aren't spending.''
The Standard & Poor's 500 Index lost 10.42 points, or 1.1 percent, to 930.09, one day after surging 11 percent. The Dow Jones Industrial Average slumped 74.16, or 0.8 percent, to 8,990.96. Three stocks gained for every two that fell on the New York Stock Exchange.
The S&P 500 is down 37 percent in 2008 and more than 20 percent in October. The Fed has cut its benchmark rate from 5.25 percent in the past 13 months and created six lending programs channeling more than $1 trillion into the financial system. The Commerce Department probably will report tomorrow that the economy shrank at a 0.5 percent annual rate in the third quarter, the most since the 2001 recession, economists predict.
GE Concern
Some traders attributed the market's late-day retreat to a report that General Electric Co. Chief Executive Officer Jeffrey Immelt said he's asking managers to match this year's profit in 2009 even if revenue declines. The comments were published by Dow Jones Newswires at the same time the market turned lower. GE closed down 1.5 percent to $19.20 after falling as much as 4.1 percent.
``Immelt made the comment that even if revenue went down 10 to 15 percent next year he hopes to keep their profits the same as 2008 levels,'' said Kevin Fischer, head of block execution at Interactive Brokers Group Inc. in Greenwich, Connecticut. ``That's what tanked us at the close.''
GE spokesman Russell Wilkerson said the initial comments were taken out of context and that Immelt was not making any kind of forecast about 2009.
Intel, the world's biggest chipmaker, slumped 5.8 percent to $14.94 after Bank of America Corp. said it expects sales in the semiconductor industry to fall 5 percent next year as economic growth falters.
`Crazy as I've Ever Seen'
JPMorgan, the largest bank by market value, slid 5 percent to $35.71. Citigroup slumped 4.2 percent to $12.91.
The S&P 500 Financials Index, which rallied as much as 3.1 percent after the Fed's announcement, reversed that gain and fell 2.9 percent in the last 10 minutes of trading.
``The last 10 minutes today were as crazy as I've ever seen,'' said Craig Hodges, a fund manager at Dallas-based Hodges Capital Management Inc., which oversees $1 billion. ``These stocks are trading like there's no tomorrow, like there's no good economy ever coming back.''
Johnson & Johnson lost $2.66 to $61.53. The stock was cut to ``neutral'' from ``overweight'' at JPMorgan Chase & Co., which said 2009 will be a ``tough year'' as two of the company's three largest drugs face generic competition.
Sealed Air Corp. dropped the most in the S&P 500, falling 22 percent to $16.36. The maker of Bubble Wrap shipping products reported third-quarter profit that trailed analysts' estimates because of higher costs for plastic resins.
Earnings Watch
Aetna Inc. slid $2.25, or 8.1 percent, to $25.55. The third-largest U.S. health insurer reduced its forecast for the year and said third-quarter profit fell 44 percent as the company booked investment losses tied to the global financial crisis.
Companies in the S&P 500 that reported third-quarter profit so far posted a 17 percent decline on average, according to data compiled by Bloomberg. A drop for the entire index would mark the fifth straight quarterly slide, the longest stretch since the dot-com bubble burst at the start of this decade.
General Motors Corp. rallied 8.2 percent to $6.76 for the top gain in the Dow. The automaker resolved ``major issues'' in merger talks with Cerberus Capital Management LP's Chrysler LLC, Reuters reported, citing unidentified people.
Commodity producers posted the steepest gains among 10 industry groups in the S&P 500 as oil advanced more than $4 a barrel and metal prices increased.
`I'm Buying Stocks'
Schlumberger Ltd., the world's biggest oilfield contractor, jumped 6 percent to $50.88. Chevron Corp., the second-biggest U.S. energy company, rose 1.4 percent to $71. The S&P 500 Energy Index jumped 2.3 percent, adding to yesterday's 12 percent rally.
Alcoa Inc., the largest U.S. aluminum producer, climbed 3.4 percent to $11.15 after rallying 19 percent yesterday, a day after its price-to-earnings valuation slid to the lowest on record.
``I'm buying stocks every day with the cash that comes in,'' said Jerome Dodson, a fund manager who oversees $1.6 billion at San Francisco-based Parnassus Investments. ``We think stocks are at a very reasonable valuation. Virtually everything you buy today is going to be higher a year from now.''
Office Depot Inc. rose 11 percent to $2.10 after the world's second-largest office-supplies retailer said it will review its assets and may close North American stores.
`More Painful'
Benchmark indexes swung between gains and losses before the Fed decision as a decline in orders for U.S. durable goods excluding transportation offset prospects for lower borrowing costs. The London interbank offered rate, or Libor, for three- month dollar loans dropped 5 basis points to 3.42 percent, while central banks in China and Norway lowered interest rates.
``We are at the beginning of a very severe U.S. recession; it's going to be much more painful,'' New York University professor Nouriel Roubini said in an interview with Bloomberg Television. ``There are still significant downside risks to equity markets and credit markets.''
Roubini, who predicted the current financial crisis in 2006, said the S&P 500 may fall as much as 30 percent during a two-year economic contraction. The Fed will probably cut its interest-rate target close to zero during that time, he said.
U.S. indexes soared yesterday with the Dow average jumping 11 percent, the sixth-best performance in the 112-year-old measure's history, as the cheapest valuations in 23 years lured investors and increased commercial paper sales signaled credit markets are thawing. The S&P 500 also added 11 percent, trimming its monthly decline to 19 percent and its yearly loss to 36 percent.
October Slump
Equities around the world tumbled this month, wiping out more than $12 trillion of market value, after money markets froze, banks' credit losses grew and economic growth weakened. All 48 of the developed and emerging markets tracked by MSCI Inc. have declined in 2008, with 20 losing at least half.
Investors speculating on a rebound in U.S. stocks may have a better chance in the first year of a Barack Obama presidency than a John McCain administration, if election history is any guide.
Since 1900, the Dow Average rose 9.8 percent in the 12 months after the Democratic Party captured the White House, based on the median change following the election of seven Democrats from Woodrow Wilson to Bill Clinton. Among newly elected Republicans, five -- including Herbert Hoover, Richard Nixon and George W. Bush -- preceded stock-market declines, with a median retreat of 2.5 percent for all 10, Bloomberg data show.
Stocks gained in Europe and Asia for a second day as falling credit costs spurred a rally in financial shares, while higher commodity prices pushed up oil and metals producers.
Today's declines in the U.S. came on the anniversary of the second day of the stock-market crash of 1929.
To contact the reporter on this story: Eric Martin in New York at emartin21@bloomberg.net.
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