By Lynn Thomasson and Jeff Kearns
Oct. 9 (Bloomberg) -- U.S. stocks slid and the Dow Jones Industrial Average fell below 9,000 for the first time since 2003 as higher borrowing costs and slower consumer spending spurred concern carmakers, insurers and energy companies will be the next victims of the credit crisis.
General Motors Corp. tumbled 31 percent to a 58-year low and Ford Motor Co. slumped 22 percent as the outlook for car sales worsened. XL Capital Ltd. lost 54 percent and led a gauge of insurers to a 13-year low on concern investment losses will curb results. Exxon Mobil Corp.'s biggest drop in 21 years accelerated the Dow's decline in the final hour of trading as oil retreated below $85 a barrel. Morgan Stanley plunged 26 percent as short sellers returned to the market after a three- week ban.
``People have lost faith in everything,'' said Philip Orlando, who helps manage $350 billion as chief equity market strategist at Federated Investors Inc. in New York. ``We're dealing with an investment community of atheists right now. Valuations no longer matter.''
The Standard & Poor's 500 Index retreated for a seventh day, losing 75.02 points, or 7.6 percent, to 909.92 to cap its longest streak of daily declines since 1996. The Dow Jones Industrial Average declined 678.91, or 7.3 percent, to 8,579.19. The Nasdaq Composite Index decreased 5.5 percent to 1,645.12. Twenty stocks fell for each that rose on the New York Stock Exchange.
`Contagion of Fear'
The S&P 500 extended its 2008 tumble to 38 percent and is poised for its worst yearly performance since 1937. Its valuation slid to 10.9 times estimated earnings, the cheapest versus reported earnings since 1985. The Dow's 35 percent tumble in 2008 puts it on course for its worst year since 1931.
``This is what happens when the contagion of fear spreads,'' said Quincy Krosby, who helps manage about $380 billion as chief investment strategist at the Hartford in Hartford, Connecticut. ``No one is paying attention to fundamentals. People are very, very scared. Ultimately investors decide to sell.''
All 10 industry groups in the S&P 500 tumbled at least 3.4 percent. Technology companies fell the least after International Business Machines Corp. posted higher-than-estimated profit and said the financial crisis will not hold up earnings. IBM rose as much as 5.3 percent in the morning before following the market lower and closing down 1.7 percent at $89.
Stocks rose in the first hour of trading as investors snapped up shares of technology and commodity companies trading at their cheapest price-to-earnings valuations since Bloomberg began tracking the data in 1995.
`Completely Overshot'
``There are problems out there, I know that, but stocks have completely overshot on the downside,'' Kevin Rendino, who manages $10 billion at BlackRock Inc., told Bloomberg Television in an interview taped before stocks began their retreat. ``There are a number of companies that offer unbelievable risk-reward potential.''
Almost $900 billion was wiped off the value of U.S. equities today. About 2 billion shares changed hands on the NYSE, 42 percent more than the same time last week. The Chicago Board Options Exchange Volatility Index, which measures the cost of using options as insurances against further declines in the S&P 500, jumped 11 percent to a record 63.92.
GM, Ford Tumble
GM lost $2.15 to $4.76, while Ford slumped 58 cents to $2.08. Market researcher J.D. Power & Associates today estimated that car and light-truck sales will fall to 13.6 million this year and 13.2 million in 2009. The total was 16.1 million last year and hasn't been as low as the 2009 projection since 1992. S&P said it may cut the automakers' debt rating deeper into junk.
XL Capital plunged $4.67 to $4.01 for the steepest decline in the S&P 500. UBS AG estimated the company's investment losses were $1.1 billion in the third quarter. The shares were removed from Goldman Sachs Group Inc.'s ``conviction buy'' list yesterday on ``concern regarding the quality of XL's investment portfolio.''
Prudential Financial Inc. tumbled $10.02, or 23 percent, to $33.27 for the biggest drop since becoming publicly traded in 2001. The second-biggest U.S. life insurer said operating profit at its financial services businesses fell in the third quarter amid turmoil in financial markets. The company suspended its buyback.
Insurers in the S&P 500 slumped 13 percent to the lowest level since November 1995. Lincoln National Corp. sank 35 percent to $18.31, while Unum Group declined 30 percent to $14.77.
Shorts Return
Morgan Stanley slid $4.35 to $12.45. John Mack, Morgan Stanley's chief executive officer, last month lobbied the Securities and Exchange Commission to ban short-selling, arguing that it was driving down the company's stock. Short sellers borrow stock and sell it, hoping to buy it back at a lower price and profit from the difference. The temporary ban imposed by the SEC ended last night.
A gauge of 969 stocks on the SEC's no-short list lost almost 10 percent today. The group tumbled 25.8 percent since the ban was imposed on Sept. 19, compared with a 24.6 percent slide in the S&P 500.
`Watching Libor'
The S&P 500 Financials Index tumbled 12 percent to its lowest level since October 1996. Bank of America Corp. and Citigroup Inc. tumbled more than 10 percent each, while JPMorgan Chase & Co. lost 6.7 percent.
The London interbank offered rate, or Libor, for three- month loans rose to 4.75 percent today, the highest level since Dec. 28.
``Everyone's watching the Libor, looking for the credit market to thaw and it's not there yet,'' said Alec Young, a New York-based equity strategist at Standard & Poor's. ``Until you get some convincing thawing in the credit markets, the threat of a global recession and a global profits recession remains and it's going to be difficult for stocks to build momentum.''
Investors pulled a record $72 billion from U.S.-managed stock and bond mutual funds in September, seeking the safety of government-insured bank deposits as the financial crisis worsened, according to data compiled by TrimTabs Investment Research in Sausalito, California. The exodus continued in the first week of October, with an additional $49.3 billion of outflows.
LBO Loans
Banks also slid as the value of high-risk, high-yield loans used to fund leveraged buyouts tumbled amid speculation that more than 1 billion euros ($1.4 billion) of debt is being offered for sale, including assets seized from Iceland's banks. Iceland's government seized control of Kaupthing Bank hf, the nation's biggest bank, completing the takeover of a financial industry that collapsed under the weight of foreign debt.
Exxon, Chevron Corp. and ConocoPhillips were among the seven biggest drags on the S&P 500. Exxon lost 12 percent to $68, while Chevron fell 12 percent to $64 and ConocoPhillips retreated 13 percent to $53.83. Energy producers in the S&P 500 slumped 11 percent as a group, the biggest retreat since the gauge was created in 1989.
Crude oil for November delivery fell 2.7 percent to $86.59 a barrel on concern demand will weaken as the economy slows. The U.S., which consumes 24 percent of the world's oil, is now in a recession, according to a Bloomberg News survey of economists.
`Forced to Sell'
Stocks with the most hedge-fund ownership dropped 7 percent today, bringing their monthly decline to 29 percent, according to data compiled by Goldman Sachs and Bloomberg. Goldman's Hedge Fund VIP Basket was dragged lower by a 21 percent tumble in Chesapeake Energy Corp. and an 18 percent drop in SLM Corp.
``Sellers are being forced to sell,'' said James Barrow, 68, president of Barrow Hanley Mewhinney & Strauss in Dallas, which manages $60 billion. ``You're unraveling the hedge-fund community completely, to the point that I assume 60 percent of them will fail.''
Analysts expect a 5.6 percent drop in third-quarter profit at S&P 500 companies, according to Bloomberg data. Alcoa Inc., the biggest U.S. aluminum producer, kicked off the earnings season this week with lower-than-estimated profit, saying net income slid by more than half.
Financial companies led the S&P 500's retreat from its record a year ago today, losing 57 percent as a group through yesterday as Lehman Brothers Holdings Inc. filed for bankruptcy, American International Group Inc. was seized by the government and Bear Stearns Cos. and Merrill Lynch & Co. were forced into emergency takeovers.
Yearlong Bear
Telephone companies had the second-steepest decline among 10 groups in the S&P 500, dropping 44 percent over the past year. Indexes of each of the other eight industries plunged at least 25 percent, except for companies that sell consumer staples, which lost only 10 percent.
Four companies in the benchmark index for U.S. equities tumbled more than 90 percent over the past year through yesterday: AIG, National City Corp., General Growth Properties Inc. and Wachovia Corp.
The three biggest gains in the bear market came from tobacco, beer and hospital companies: UST Inc., Tenet Healthcare Corp. and Anheuser-Busch Cos. each climbed more than 22 percent in the year since the S&P 500's record.
To contact the reporters for this story: Lynn Thomasson in New York at lthomasson@bloomberg.net; Jeff Kearns in New York at jkearns3@bloomberg.net.
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