U.S. Stock Futures Retreat on Concern Over Worsening Economy

By Adria Cimino and Whitney Kisling

Dec. 15 (Bloomberg) -- U.S. stock futures retreated after manufacturing in New York contracted at the fastest pace on record and analysts said the worsening economy will hurt earnings at companies from Apple Inc. to JPMorgan Chase & Co.

Apple Inc. slipped 1.9 percent after the maker of iPods was downgraded to “neutral” at Goldman Sachs Group Inc. JPMorgan Chase & Co. dropped 3.5 percent after the bank was cut to “underperform” at Merrill Lynch & Co. General Motors Corp. added 4.3 percent as President George W. Bush signaled a decision on rescuing American carmakers would be swift.

“The market is very much touched by economic statistics, which have been difficult,” said Alexandre Iatrides, a fund manager at KBL Richelieu, which oversees about $5.4 billion in Paris. “The good news is there may be a new decision on automakers in the weeks to come.”

S&P 500 futures expiring in March lost 0.3 percent to 883.2 at 9:07 a.m. in New York. Dow Jones Industrial Average futures slipped 0.2 percent to 8,644 and Nasdaq-100 Index futures dropped less than 0.1 percent to 1,214.75.

Futures suggested the S&P 500 may slip after the index rose 0.4 percent last week on speculation President-elect Barack Obama’s spending proposals will restore growth and the Bush administration may save GM and Chrysler LLC.

The Federal Reserve Bank of New York’s general economic index fell to minus 25.8, the lowest level since records began in 2001, from minus 25.4 in November. Readings below zero for the Empire State index signal manufacturing activity is shrinking.

Simultaneous Recessions

The first simultaneous recessions in the U.S., Europe and Japan since World War II have helped send the S&P 500 down 44 percent since its October 2007 record.

The MSCI Asia Pacific Index climbed 4.1 percent today as Toyota Motor Corp. rallied 9.8 percent and Hyundai Motor Co. jumped 7.1 percent. Europe’s Dow Jones Stoxx 600 Index added 0.3 percent as commodity producers rallied.

Apple slid 1.9 percent to $96.44. The maker of Macintoch computers was downgraded to “neutral” from “buy” at Goldman Sachs on concern that consumer spending will weaken further. David Bailey lowered his 12-month share-price estimate for Apple to $115 from $125 and cut his 2009 earnings-per-share estimate to $4.75 from $5.13, the New York-based analyst wrote in a note.

Shipments of MacBooks, iPod nanos and iPhones were “slightly” lower than anticipated in the quarter ending this month, and the company may be hurt further in the first half of next year as consumers rein in spending, Bailey said. Apple is scheduled to hold its annual Macworld conference next month, where it typically introduces new products and services.

JPMorgan Downgraded

JPMorgan, the biggest U.S. bank by assets, fell 3.5 percent to $29.85. The stock was cut to “underperform” from “neutral” at Merrill Lynch, which said “it is increasingly clear that credit costs in the U.S. will get much worse.”

Merrill also slashed JPMorgan’s share-price target by 39 percent to $27 and said the bank may report a fourth-quarter loss of 11 cents a share and a $2.8 billion writedown.

AT&T Inc. slipped 1.7 percent to $27.70. The largest U.S. phone company was downgraded to “neutral” from “buy” at Goldman Sachs.

GM added 4.3 percent to $4.11. President George W. Bush said deliberations by his administration on whether to tap a bank bailout fund to keep GM and Chrysler out of bankruptcy “won’t be a long process” because of the “fragility” of the U.S. automakers. The president, traveling on Air Force One from Iraq to Afghanistan last night, said he “signaled” his administration is considering using money from the $700 billion fund. Bush said he’s “not quite ready” to announce any rescue plan.

Toyota, Hyundai Rally

Toyota rose 9.8 percent to 3,030 yen in Tokyo, trimming its slump this year to 50 percent. The automaker is likely to report a second-half operating loss of more than $1 billion, the Asahi newspaper reported on Dec. 13.

Hyundai, whose biggest overseas market is the U.S., added 7.1 percent to 45,000 won in Seoul. Daimler AG, the world’s largest truckmaker, gained 2.6 percent to 24.67 euros in Germany.

Rio Tinto Group, the third-biggest mining company, advanced 3.4 percent to 1,539 pence as copper gained in Asia while lead, tin and zinc rallied in London.

Earnings at U.S. companies have dropped for five straight quarters, matching the longest streak on record, as the deepest financial crisis since the Great Depression turned 2008 into the worst year for the S&P 500 since 1931, according to data compiled by Bloomberg.

Companies in the S&P 500 are marking down assets at the fastest rate in six years, leaving operating profits 46 percent higher than net income in the third quarter, a level last seen in 2003 when the previous bull market began. The ballooning gap between net income and operating profit suggests companies are getting rid of their weakest businesses, setting the stage for a recovery in stocks next year.

To contact the reporter on this story: Adria Cimino in Paris at acimino1@bloomberg.net.