By Lynn Thomasson
Dec. 1 (Bloomberg) -- U.S. stocks slid the most since October, wiping out more than half of last week’s rally, on growing concern the global economic slump is deepening and consumers’ access to credit is shrinking.
General Electric Co. and Caterpillar Inc. lost more than 9.7 percent following a report that manufacturing contracted at the fastest pace in 26 years. American Express Co. and JPMorgan Chase & Co. fell more than 15 percent on Oppenheimer & Co. analyst Meredith Whitney’s prediction that credit-card companies will cut available lending by 45 percent, or more than $2 trillion. Treasuries rose, sending yields to record lows, as Federal Reserve Chairman Ben S. Bernanke said the central bank may buy bonds to combat the worsening recession.
“The economic news is going to continue to get worse before it gets better,” Leo Grohowski, the New York-based chief investment officer for the wealth management unit of Bank of New York Mellon Corp., which oversees $158 billion, told Bloomberg Radio. “The biggest single challenge in terms of the economy is the state of housing and it still remains precarious.”
The S&P 500 sank 8.9 percent to 816.21, with financial stocks in the index tumbling a record 17 percent as a group. The Dow Jones Industrial Average plunged 679.95 points, or 7.7 percent, to 8,149.09 with all 30 companies declining. The Nasdaq Composite Index declined 9 percent to 1,398.07. Almost 38 stocks retreated for each that rose on the New York Stock Exchange.
The five consecutive advances in the S&P 500 before today marked the benchmark gauge’s longest streak of gains since July 2007 and sent it up 19 percent from an 11-year low on Nov. 20, the most over five days since 1933.
Recession Since ‘07
The U.S. economy entered a recession last December, the panel at the National Bureau of Economic Research that dates American business cycles said today.
The S&P 500 rises an average of 10 percent in the second year following a peak in the U.S. business cycle, based on the start of 13 prior recessions in the index’s 80-year history. The biggest advance, 52 percent, occurred between 1982 and 1983, while the steepest loss, 35 percent, was between 1930 and 1931. The S&P 500 gained eight times and fell five, according to data compiled by Bloomberg.
The S&P 500 has tumbled 44 percent this year as credit losses and writedowns at the world’s largest financial firms approach $1 trillion and analysts forecast the economic slump will be one of the most severe in the post-World War II era.
Stock indexes from London to Tokyo tumbled today on reports showing record declines in European and Asian manufacturing.
Manufacturing Shrinks
GE, the world’s biggest maker of power-generation equipment, slid $1.67 to $15.50. GE may give lower projections for the company’s performance next year during a webcast tomorrow to detail finance unit GE Capital’s 2009 outlook, Citigroup Inc. analyst Jeffrey Sprague said in a note to clients. Merrill Lynch & Co. analysts cut their profit forecasts for the company through 2010, citing a deteriorating environment for industrial and financial companies.
Caterpillar, the largest maker of bulldozers, retreated $4.41 to $36.58.
The Institute for Supply Management’s manufacturing index dropped more than forecast to 36.2, the lowest since 1982, the Tempe, Arizona-based group said. A reading of 50 is the dividing line between expansion and contraction.
‘Front and Center’
“The bad news is still very clearly front and center on the radar screen,” Jeffrey Palma, head of global equity strategy at UBS Securities LLC, told Bloomberg Television. “Anyone who is looking for good news on the economy is going to have to wait a while longer.”
Bernanke said he has “obviously limited” room to lower interest rates further and may use less conventional policies, such as buying Treasury securities, to revive the economy. The Federal funds target, the central bank’s benchmark interest rate, is at 1 percent.
The economy “will probably remain weak for a time,” even if the credit crisis eases, Bernanke said in a speech in Austin, Texas.
The S&P 500 Financials Index sank 17 percent for the biggest decline in the 19-year history of the index. The group surged 31 percent last week.
American Express, the largest U.S. credit-card company by purchases, slid $3.67 to $19.64. JPMorgan lost $5.54 to $26.12.
Card companies will reduce lending by more than $2 trillion over the next 18 months in a “dangerous and unprecedented” move for U.S. consumer spending, Oppenheimer’s Whitney said in research report. There are signs of “broad-based declines” in consumer access to capital, Whitney said.
Goldman, Morgan Stanley Tumble
Goldman Sachs Group Inc. and Morgan Stanley plunged 17 percent and 23 percent respectively after Credit Suisse Group AG said the slowdown in investment banking and trading will force the New York firms to report fourth-quarter losses and weaker results for 2009.
The VIX, as the Chicago Board Options Exchange Volatility Index is known, posted the biggest gain in five weeks, climbing 24 percent to 68.51. The gauge measures the cost of using options as insurance against further declines in the S&P 500.
The S&P 500 rose the most since 1974 last week, soaring 12 percent, after tumbling 8.4 percent the previous week.
‘Capital Preservation’
“We don’t like our net asset value bouncing around every single day in a violent fashion,” said Doug Cliggott, chief investment officer of Dover Management LLC in Greenwich, Connecticut. “It’s all about capital preservation right now.”
Energy producers in the S&P 500 slid 10 percent today as oil tumbled more than $5 a barrel and the Organization of Petroleum Exporting Countries said slowing global growth means demand will be “much lower” than expected a month ago.
Crude oil for January delivery declined 9.5 percent to $49.28 a barrel in New York, the lowest closing level in more than three years. OPEC deferred a decision to reduce output until its next meeting on Dec. 17.
Hess Corp., the fifth-biggest U.S. oil company, dropped 19 percent to $43.71. Anadarko Petroleum Corp., the nation’s second-largest independent oil producer, lost 8.4 percent to $37.60.
Merrill Lynch cut its recommendation on 11 energy stocks, including Schlumberger Ltd., whose shares lost 17 percent to $42.08. The company, the world’s largest oilfield-services provider, was downgraded to “neutral.”
‘Unrelentingly Negative’
“It’s hard to not be concerned about the prospects for a multi-year global economic contraction,” wrote Calgary-based Alan Laws of Merrill Lynch. “The daily flow of news is unrelentingly negative and comprised of many issues that should take quite some time to resolve.”
Raw-material producers in the S&P 500 lost 9.8 percent collectively as commodity prices fell on worsening economic reports around the world. Manufacturing in China, the world’s biggest consumer of copper, shrank by the most on record and export orders plunged, according to the China Federation of Logistics and Purchasing and CLSA Asia-Pacific Markets. A European manufacturing index dropped to the lowest level since the survey began in 1998.
Freeport-McMoRan Copper & Gold Inc., the world’s largest publicly traded producer of copper, retreated 13 percent to $20.91. U.S. Steel Corp., the biggest U.S.-based steelmaker by 2007 sales, dropped 16 percent to $25.64.
The Reuters/Jefferies CRB Index of 19 raw materials slumped 3.6 percent, led by silver and oil.
Pilgrim’s Pride Bankruptcy
Pilgrim’s Pride Corp., the largest U.S. chicken producer, filed for Chapter 11 bankruptcy protection after rising grain costs and surplus caused it to post four consecutive quarterly losses. The stock, which plunged 98 percent this year, was halted at 62 cents in NYSE trading.
Limited Brands Inc. had the biggest drop in at least 26 years, tumbling 19 percent to $7.57. Citigroup Inc. analysts cut the owner of the Victoria’s Secret lingerie chain to “hold” from “buy,” citing a 31 percent rise in the stock from Nov. 20 to Nov. 28.
S&P 500 retailers slumped 9.3 percent, the most since 1998.
Just two stocks in the S&P 500, AutoNation Inc. and Rohm and Haas Co., rose today.
Mentor Corp. soared 89 percent to $30.58. Johnson & Johnson, the world’s largest health-care company, said it will acquire the breast-implant maker for $1.07 billion in cash. Holders of Mentor will get $31 a share, almost double the $16.15 close from Nov. 28. J&J slipped 5.6 percent to $55.33.
The plunge in U.S. stocks that pushed the S&P 500 to an 11- year low last month is over, according to Laszlo Birinyi, who predicted the rout in financial shares.
“The market will not again visit 750 on the S&P,” Birinyi, president of Birinyi Associates Inc. in Westport, Connecticut, wrote in a report today.
Swiss industrial companies, Texas oil drillers and Japanese robot makers are too cheap to pass up, according to the best- performing money managers this year. Fund managers Phillip Davidson, Stephen Docherty and Eric Cinnamond say they are all taking advantage by buying shares they say were unfairly punished.
To contact the reporter on this story:
Lynn Thomasson in New York at
lthomasson@bloomberg.net.
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