By Whitney Kisling
Dec. 18 (Bloomberg) -- U.S. stocks fell for a second day as a deteriorating credit outlook for General Electric Co. spurred concern the financial crisis is worsening, while oil’s retreat below $36 a barrel dragged down energy shares.
GE tumbled 8.2 percent as Standard & Poor’s cut its debt outlook to “negative” on concern dwindling earnings at its financial unit may force a credit downgrade. Exxon Mobil Corp. and Chevron Corp. lost about 5 percent as crude slid to a four- year low on speculation production cuts aren’t enough to match a drop in demand. General Motors Corp. plunged 16 percent and Ford Motor Co. almost 10 percent after the White House said it hasn’t made a decision on how to bail out the nation’s carmakers.
The S&P 500 declined 2.1 percent to 885.28. The Dow Jones Industrial Average slid 219.35 points, or 2.5 percent, to 8,604.99, while the Russell 2000 Index of small companies fell 1.5 percent. Benchmark indexes drifted between gains and losses before sliding to session lows late in the day as GE sank.
“Here’s another bellwether company that is apparently not immune from the environment that we’re in and the stresses that that creates on balance sheets and cash flow,” Bartlett Geer, who oversees more than $3 billion at Boston-based Putnam Investments LLC, said of GE. “It just highlights the investor fears around downgrades and credit ratings.”
Early gains in stocks faded after the White House said that while President George W. Bush’s administration is “very close” to a decision on how to rescue the auto industry, it isn’t planning an announcement on the subject today.
40 Percent Slide
The S&P 500 has fallen 40 percent in 2008, poised for its biggest annual drop since 1931, as credit losses and writedowns at the world’s largest banks exceeded $1 trillion and the U.S. slipped into the deepest recession in a quarter century. The Conference Board’s index of leading economic indicators fell in November for the fifth time in seven months, reflecting the worsening outlook for the economy.
GE, the 106-year-old economic bellwether, and its GE Capital finance arm had their debt ratings outlook lowered to “negative” from “stable” at S&P to reflect concern earnings may erode further than previously thought. GE shares, which have fallen 57 percent this year, lost $1.43 to $15.96.
S&P’s warning on GE’s debt followed its reduced outlook yesterday on Toyota Motor Corp., Japan’s biggest automaker, which it cut to “negative” from “stable” as the global recession hurts demand for cars. Toyota’s American depositary receipts slipped 1.8 percent yesterday and continued their decline today, losing 4.3 percent to $65.54.
Energy Slump
Exxon, the largest U.S. crude producer, lost $4.06 to $77 as oil for January delivery fell below $36 a barrel for the first time since July 2004. Crude settled at $36.22, down 9.6 percent, after sinking to as low as $35.98 during the session in New York. Chevron retreated $3.79 to $73.03.
A group of 40 energy companies lost 5.6 percent and was the biggest drag on the S&P 500 among 10 industries.
The Organization of Petroleum Exporting Countries may not have trimmed production enough to bolster the more than $100 drop in prices since July. The group, which supplies more than 40 percent of the world’s oil, said yesterday it would cut output by 2.46 million barrels to 24.845 million barrels a day.
JPMorgan Chase & Co. reduced its 2009 average oil price forecast to $43 a barrel from $69 as a global economic slowdown kills demand. UBS AG said a slide in crude to less than $20 next year is possible.
GM fell 16 percent to $3.66. The biggest U.S. automaker, Chrysler and Ford Motor Co. will shutter about 59 factories over the next month as they struggle to adapt to the worst sales in 26 years and await a verdict on a U.S. rescue of the industry. Without $14 billion in federal aid, they will be out of money by early 2009, the carmakers say.
No ‘Disorderly Collapse’
The Bush administration won’t “allow a disorderly collapse” of the auto industry, White House spokeswoman Dana Perino said today.
GM also hasn’t resumed merger talks with Chrysler, the carmaker’s spokesman Tony Cervone said today. The Wall Street Journal reported yesterday that talks were under way.
Ford, the second-biggest U.S. automaker, fell 9.6 percent to $2.84.
U.S. Steel Corp., the largest U.S.-based steelmaker by 2007 sales, retreated 11 percent to $37.34 after Goldman Sachs downgraded the shares to “neutral” from “buy.” Investors should “take profits,” as the analysts said they “do not see any catalysts to remain constructive on the name” because the share price had passed their estimate of $41. AK Steel Holding Corp. slipped 11 percent to $9.83, helping send an index of companies that produce raw materials down 4.3 percent.
Discover Financial Jumps
Discover Financial Services rose 7.9 percent to $9.26 after the fourth-largest credit-card network posted a higher quarterly profit and joined investment banks and other card companies in applying to become a bank to become eligible for federal programs to bolster their finances.
Coca-Cola Enterprise Inc., the world’s largest soft-drink distributor, rallied 8.3 percent to $11.58 after the company boosted its full-year profit forecast, helped by stronger North American sales volume.
Insurance companies were among the biggest gainers in the S&P 500, as MetLife Inc. and Prudential Financial Inc. rallied more than 5.4 percent. The National Association of Insurance Commissioners completed a review of a proposal that would lower the amount of money carriers must hold against guarantees made to variable annuity clients. Annuities are retirement products that often guarantee income for life in exchange for an up-front payment. Last month, life insurers called for a speedier reform to loosen regulation of reserves.
Insurance Rally
The group, which has gained more than twice as much as the S&P 500 as the benchmark U.S. index rebounded 18 percent from an 11-year low on Nov. 20, is still down 61 percent in 2008. Today marked the first back-to-back declines in the S&P 500 since Nov. 20.
Ace Ltd., the insurer that moved its headquarters to Zurich from Bermuda, forecast operating income next year will be $7.25 to $8.25 a share, in line with the average analyst estimate, according to a Bloomberg News survey. The company may benefit from commercial property and casualty market conditions that are “in a state of change,” Chief Executive Officer Evan Greenberg said in a statement today.
Ace rose 1.5 percent to $51.76. MetLife climbed $2.18 to $36.07, while Prudential added $1.56 to $30.74.
European stocks retreated on lower forecasts from ASML Holding NV and Carrefour SA.
The MSCI Asia Pacific Index advanced to a six-week high, led by financial companies, on speculation lower interest rates will help revive economic growth.
VIX Retreats
The VIX, as the Chicago Board Options Exchange Volatility Index is known, fell 5 percent to 47.34, the lowest level since Oct. 3. The index gauges how much investors are paying for insurance against declines in the S&P 500.
An index of S&P 500 real estate companies fell 9.1 percent, the group’s first decline in three days, after Merrill Lynch & Co. cut Equity Residential, the largest U.S. real estate investment trust that owns apartment buildings, to “underperform” from “neutral.” The shares slid 12 percent to $28.86.
Take-Two Interactive Software Inc. tumbled 26 percent, the most since December 2001, to $8.91 after the publisher of the “Grand Theft Auto” video games unexpectedly projected a first- quarter loss and a profit shortfall for fiscal 2009.
MEMC Electronics Materials Inc. fell 13 percent to $14.52. The maker of silicon wafers for the solar industry reduced its sales forecast, saying revenue will be as much as $425 million in the fourth quarter. That trailed the average estimate of $485 million from analysts in a Bloomberg survey.
Moving Average Watch
Of the 500 companies in the S&P 500, only 20 traded above their 200-day moving average today, compared with 158 on Sept. 19. To some technical analysts, who study charts to make price predictions, surpassing a moving average suggests a majority of investors have turned bullish.
The S&P 500 rose above its 50-day moving average on Dec. 16 for the first time in more than three months after the Federal Reserve cut its benchmark lending rate to a record-low range of zero to 0.25 percent. The S&P 500 gained 5.1 percent that day, hitting a five-week high.
President-elect Barack Obama may ask Congress next year to approve a stimulus plan of around $850 billion, an amount that has grown as the U.S. economy sinks deeper into recession, an adviser to the president-elect said. Obama’s transition team believes that the amount is necessary to reverse rising unemployment, said the adviser, who spoke on condition of anonymity.
Treasury Secretary Henry Paulson may ask Congress for the remainder of the $700 billion bank bailout funds as the first $350 billion may be exhausted with the rescue that President George W. Bush’s administration considers for General Motors Corp. and Chrysler LLC. The Treasury chief is discussing with aides strategies to seek congressional approval for the rest of the Troubled Asset Relief Program, people familiar with the deliberations said.
To contact the reporter on this story: Whitney Kisling in New York at wkisling@bloomberg.net.
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